The economist reads what a student has written on a course evaluation form:
I like the course and have learned a lot this semester. However, I find myself getting distracted when students come into the class late. There is often a steady stream of students coming in late to class. I wish something could be done about this.
Hear what and how the economist thinks:
So, what we have here are some students coming to class late and this disturbs other students. One way to look at this is in terms of a property rights issue. Who has the right to do what? Does the on-time student have the right to a disturbance-free class, or do the latecomers have a right to come to class late? One way of dealing with the problem is to have the professor make a property rights assignment.
The professor could give the property right to the on-time students to have the right to a disturbance-free class. Then, if the latecomers find that they benefit more from being late than the on-time students benefit from a disturbance-free class, the latecomers can purchase the property right from the on-time students. Let’s say that the latecomers value being late by \($4\) and the on-time students value a disturbancefree class by \($2.\) The latecomers can buy the right to be late for, say, \($3\) and both the latecomers and the students who come to class on time will be made better off. Of course, the transactions costs for the two groups of students getting together to effect the transaction at hand is probably high enough that they won’t get together and work out an agreement.
Of course, if the professor thinks that the latecomers are not taking into account the cost they impose on the on-time students when they decide to be late to class, he could try to make their marginal private cost (MPC) increase by the amount of the marginal external cost incurred by the on-time students. The way to do this is to impose a “tax” on the latecomers. The tax might be a one-point reduction in their final course grade for every time they come into class late. In other words, come to class late, pay a tax of a 1-point reduction in your course grade.
Questions:
1. Do you think persuasion or a tax would be more likely to get latecomers to reduce their lateness to class? Explain your answer. (Note: Persuasion would come in the form of the professor telling the latecomers that their lateness imposes a cost on the on-time students.)
2. How is a speeding ticket similar to a tax that is used as a corrective device for a market failure?