Question

Johnston Forest in Rhode Island has a cave that houses thousands of fruit bats. Bat droppings are highly acidic and have ruined the paint on many cars. The flying radius of the Johnston Forest bats encompasses two towns, Johnston and Foster. The residents of Johnston collectively value bat removal at \(\$ 400,000 .\) Foster residents collectively value bat removal at \(\$ 500,000 .\) Pest control experts estimate that the cost of bat removal would be \(\$ 450,000\). Which of the following scenarios would lead to removal of the bats? Check all that apply. [LO 18.4\(]\) a. Foster pays Johnston \(\$ 50,000\) to contribute to bat removal. b. Foster and Johnston evenly split the cost of bat removal. c. Johnston contributes nothing toward bat removal.

Short answer

All scenarios (a, b, and c) result in the removal of the bats.

Step-by-step solution

Understand the Problem

The problem discusses bat removal from a forest whose flying radius affects two towns: Johnston and Foster. The residents of these towns have a collective valuation of removing the bats, and there is a set cost for this removal. We need to assess scenarios where the combined value of removal should either match or exceed the cost of removal.

Determine Total Value and Cost

Identify the total value of removing the bats by adding the value assigned by Johnston and Foster, which is \(400,000 + 500,000 = 900,000\). This total value is compared against the cost of bat removal, which is \(450,000\). Since \(900,000 > 450,000\), it's feasible to remove the bats.

Evaluate Scenario a

In this scenario, Foster pays Johnston \(50,000\) for bat removal. If Johnston's value from the removal is \(400,000\), then with \(50,000\) from Foster, Johnston can cover \(450,000\) of the removal cost. Since Foster's value is still \(500,000\), both towns benefit since the total value remains \(900,000\), which is greater than the cost \(450,000\).

Evaluate Scenario b

In this scenario, Foster and Johnston equally share the cost of \(450,000\), meaning each pays \(225,000\). Since Johnston values the removal at \(400,000\) and pays \(225,000\), and Foster values it at \(500,000\) and pays \(225,000\), both towns benefit (\(400,000 - 225,000 = 175,000\) and \(500,000 - 225,000 = 275,000\)).

Evaluate Scenario c

In this scenario, if Johnston contributes nothing, Foster would bear all \(450,000\) of the removal cost. Since the value Foster places on removal is \(500,000\), covering a \(450,000\) cost results in a net benefit \(500,000 - 450,000 = 50,000\), which means Foster benefits from removal alone.

Key concepts

Public Goods

Public goods are items or services that can be enjoyed by everyone, without reducing their availability to others. They are defined by two main characteristics: they are non-excludable and non-rivalrous. Non-excludable means that it’s difficult to prevent anyone from enjoying their benefits, while non-rivalrous means one person's consumption does not decrease availability for others.
In the context of the Johnston Forest exercise, the removal of bats can be seen as a public good. Both towns, Johnston and Foster, share in the benefits of bat removal. Once the bats are removed, all residents enjoy the improved environment without direct exclusion, similar to clean air or national defense.
Collectively, communities often fund public goods through taxes or voluntary contributions since the shared benefits encourage mutual investment. This exercise showcases how communities evaluate the costs and benefits of public goods through cooperation.

Externalities

Externalities occur when a decision or activity causes unintended impacts on others, which can be either beneficial or harmful. They are often not factored into the initial cost or value of the decision.
For Johnston and Foster, the presence of bats is an externality. The droppings damage car paint, which is an unintended consequence affecting the residents without their direct involvement. This represents a negative externality:

• Negative externalities increase costs or reduce benefits for others.
• The benefit or harm extends beyond the individual's direct control or purchase.

Effective handling of externalities often involves shared solutions to mitigate the unintended impacts, such as the cooperative effort to remove bats in our exercise. Addressing externalities is crucial in achieving optimal economic outcomes, minimizing societal costs, and ensuring fair resource allocation.

Collective Action

Collective action refers to the collaborative effort taken by a group to achieve a common goal or address a shared problem. It’s especially relevant when individual efforts would not suffice to achieve desired outcomes.
The bat removal exercise highlights how collective action can solve problems that affect larger communities. Here, the residents of Johnston and Foster band together to fund the removal of bats. Such cooperation is crucial for:

• Pooling resources and sharing costs, making large endeavors feasible.
• Ensuring that the benefits of action are evenly distributed among the contributors.
• Encouraging participation through shared interests and benefits.

In essence, collective action simplifies complex challenges that are too vast for individuals alone to tackle effectively, ensuring a coordinated and equitable pursuit of shared interests.

Environmental Economics

Environmental economics focuses on the economic impacts of environmental policies and the use of resources. It uses economic analysis to evaluate the implications of environmental issues and guides decision-making to achieve sustainable outcomes.
In the bat removal scenario, environmental economics plays a role in assessing the cost of removal versus the value perceived by the affected communities. Key considerations include:

• Cost-benefit analysis to determine if the removal expense justifies the environmental improvements.
• Allocating resources efficiently to maximize the environmental benefits across communities.
• Ensuring long-term sustainability by considering the wider impacts of removal on the ecosystem.

By applying environmental economics principles, communities can balance cost implications with environmental well-being, promoting harmony between economic activities and ecological health.