Question 3) In india, a drug used to treat sick cows is leading to the death of

Question

Question 3) In india, a drug used to treat sick cows is leading to the death of many vultures that feed off of deat cattle. Before the decrease in the number of vultures, they sometimes used to smash into engines of jets taking off from new delhi's airports,posing a serious threat to air travelers.However,the decline of the vultute populations of rats and feral dogs,which are now the main scavengers of rutting meat. There have been calls for a ban on the drug used to threat the cows. Identify the externalities that are present in the situation.Comment on the efficiency of banning the drug.How would you design an incentive-based regulation to attein an efficient outcome?

Explanation / Answer

There are two externalities in this case. A positive externality is that there is a decrease in vultures to smash into planes and a negative eternality is the sharp increase in rats and feral dogs which mean an increase chance a disease spreading. The only efficiency to banning the drug is that the vulture population would go up and cause the dogs and rats population to go down, thus decreasing the chance for a disease to spread.

There are many ways to design incentive based regulations. Policymakers could determine the efficient level of drug usage and then either allocate or sell the right to use the drug for sick cows.

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