The United States is facing a crisis that may confront
Central Asia someday. The states implore President Donald Trump to order
companies to produce anti-viral equipment – such as face masks, gloves, hand
sanitizers, and ventilators―to satiate their shortages. Trump would prefer to
leave it to the market to determine how much anti-viral equipment is purchased
by each state.
But the market is not efficient in this case, because
the equipment confers what economists call “positive externalities.” Each case
avoided of the coronavirus averts another two cases or so that would have
occurred through transmission of the original infection. Since the purchaser of
the equipment cannot cash in on the two averted cases, he will be willing to
pay too little for the masks and sanitizers. The low prices will discourage
production.
A better solution is for the government to subsidize
the manufacturing. Perhaps second-best is for the government to order ramped-up
production, which effectively forces the stockholders to subsidize it. –Leon Taylor tayloralmaty@gmail.com
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