In India, a drug used to treat sick cows is leading to the death of many vultures that feed off of dead cattle. Before the decrease in the number of vultures, they sometimes used to smash into the engines of jets taking off from New Delhi’s airports, posing a serious threat to air travelers. However, the decline of the vulture population has led to a sharp increase in the populations of rats and feral dogs, which are now the main scavengers of rotting meat [Gentleman, 2006, p. A4]. There have been calls for a ban on the drug used to treat the cows.
Identify the externalities that are present in this situation. Comment on the efficiency of banning the drug. How would you design an incentive- based regulation to attain an efficient outcome?