Answer to Question #317586 in Economics for hina

Question

Consider two ways to protect your car from theft. The Club (a steering wheel lock)

makes it difficult for a car thief to take your car. Lojack (a tracking system) makes

it easier for the police to catch the car thief who has stolen it. Which of these

methods confers a negative externality on other car owners? Which confers a

positive externality? Do you think there are any policy implications of your

analysis?

Answer 1

Lojack confers a positive externality on other car owners, because police neutralizes thiefs for all of owners. The Club saves one certain car, and increases the probability of theft for all the rest cars, so it confers a negative externality. May be it is worth to motivate car owners to use Lojack by implementing of tax credits or discounts