Tour to Nandi Hills: Excited with Externalities
Two MBA first semester students – Deepa Sharma (Deepa) and Divya Lokhande (Divya) – go on an outing to Nandi Hills. On the National Highway 7 (NH7), they come across a toll gate where they pay a toll-fee. Later, they discuss the operation of a public good (highway/expressway) built on PPP model. When they reach Nandi Hills, they witness the misuse of another public good (Tipu Sultan’s Summer Palace, and other tourist attractions), which were littered and spoilt with writing on the walls, etc. This sets them to wonder about the cost of such negative externalities that arise out of the misuse of public goods.
The caselet introduces the participants/students to the concepts of Externalities, Public Goods and Private Goods. It also enables the participants to be sensitized to relate them to the concepts of Free-Rider Problem and Deadweight Social Loss when a public good is misused.
Prerequisite Conceptual Understanding (PCU)/Before the Classroom Discussion
The participants should be asked to read the following chapter to help them connect the concepts discussed in the caselet:
- • Paul A. Samuelson, et al., “The Modern Mixed Economy”, Economics, 19th Edition (Special Indian Edition), McGraw Hill Education (India) Private Limited, 2014 – To understand the role of the visible hand of the Government in the economic functions of a market economy like increasing efficiency, curbing externalities and providing public goods
Case Positioning and Setting
The caselet can be used in either MBA or Executive MBA or Executive Development Programs, for the following modules/topics in the Economics course:
- • In ‘Managerial Economics’ Course: Public Goods and Externalities – To understand the relevance and importance of the concepts of Public Goods, Private Goods, Positive and Negative Externalities, Free- Rider Problem and Deadweight Social Loss
- • Corporate Responsibility Module: To sensitize the participants to the concepts of Positive and Negative Externalities and the Resultant Dead Weight Loss
- I. What do you understand by Public Goods and Private Goods? Applying the ‘Rivalry-Excludability’ premise, analyze the road built on PPP model as outlined in the caselet.
- II. What are externalities? What are the differences between positive and negative externalities? Using the caselet facts highlight the possible Deadweight Social Loss associated with littering and spoiling a public good like Tipu Sultan’s Summer Palace.
- III. ...................
Preamble to the Caselet Analysis and Suggested Orchestration
The purpose of this caselet is to provide an in-depth understanding of the Public and Private Goods, and the nature of their Rivalry and Excludability applying them to the PPP model. The analysis of the second incident (littering and spoiling public goods) in the caselet introduces the participants to the concept of externalities – positive and negative. By understanding and gaining knowledge of the above concepts a manager would be equipped to make an effective decision. Accordingly, the suggested orchestration of this caselet is presented in Exhibit (TN)-I..........................