Tuesday, July 29, 2008

Externalities in Rubber Ducks

This article describes new legislation to control hazardous materials in children's toys. Lead and phthalates (the latter a chemical to make rubber and plastic more pliable) are chemicals related to negative health effects especially in young children. The recent problems with the contamination in imported toys alerted Congress about the need for higher standards and more oversight in the regulation of certain private goods.

The chemical contamination in manufacturing represents an externality. The question of whether it can be observed directly or not is still debated. Although the amount of lead and phthalates can be measured, the amount of harm they impose on the consumer is what is debated. Those in favor of regulation site studies that show exposure to these chemicals produces negative health effects in animal. The manufacturers and their lobby argue that the scientific evidence is inconclusive. (A National Public Radio program compared the current debate over these chemicals with the earlier one that focused on saccharine as a carcinogen.). Therefore regulation of this chemical will need to focus on the original action (page 456 in Chapter 19) rather than on the outcome. That is, what is being regulated is the presence of the chemical itself and not the health problems which remain uncertain and hard to measure.

There would be little incentive for manufacturers to change their use of this chemical and it would not be possible to depend on the market to regulate it since consumers have no way of telling from looking at the product whether it is contaminated or not. Therefore governmentregulation is required to control the negative externality of the rubber duck and all toys.

5 comments:

Greg Delemeester said...

Steve, what form of government regulation would you recommend in this case? Would a Pigovian tax (a tax set equal to the marginal external cost) lead to the socially optimal outcome?

katiedickson said...

If I am not mistaken, action was recently taken by specific companies. Ganz, a United States retail distribution center actually sent everything they got from Chinese manufacturers back. After everything was sent back and cleared of the harmful contents, Ganz demanded their reimbursement. I am sure this has happened with other companies and if a tax were set, the buyers would be less apt to be so dissatisfied and the producers might be more willing to make changes.

Nathan Eschbaugh said...

There is no way to tell the exact degree of externalities on the children who play with the ducks. But in this case as in any the government must step in with a pigovian tax to protect the future of America. By doing so the it would, as mentioned create incentive for the manufacturers to stop the usage of the chemicals and consider a different method of some sort.

Jessica Hutchison said...

I agree with Nathan that the pigovian tax needs to be implemented in order to protect the future of American children. This would make the producers of these products, have to find a different avenue for their materials. It could be more expensive or they could find a breakthrough and be cheaper; however, toys, such as the rubber ducky, is a popular toy and if the producers don't change something people will stop buying this product.

Steve said...

In answer to the question of what governmental regulation I would suggest, I would use Pigovian incentives to companies that take steps to convert their manufacturing but also set a date for complete compliance with the ban on such chemicals. This latter step I would take only when the scientific evidence of harm increases. the problem I see with anything less that an absolute ban is that although a tax will eventually reduce the amount of the chemical in the toys, some companies will be able to absorb that cost and the children will still be harmed. I recall reading about the Ford Pinto with the gas tank in a dangerous place, exposed so that it would explode on a rear-end collision. the government stepped in but in the court case that followed a bad crash, the government showed that the Ford Motor Company had calculated the differential between the cost of the law suits they would face after accidents and the cost of retooling the factories and changing the design. they figured the cost of suits would be less and so continued to make the cars until the government baned them. when something is dangerous to the public, should we simply tax those who continue to put society at risk?