Student Question

Which of the following would allow government to cut the cost of negotiation among car owners regarding LoJack installation?

LoJack is a devise that can be installed on your vehicle to help track it if it is stolen. LoJack installation on 1 car offers external benefits to the community by helping police track and find other stolen cars when they track the vehicle that is stolen which has the LoJack devise.  This question is multiple choice. The answer choices are: a. the govt can impose a quota on the import of LoJacks. b. The govt can invite public opinion on LoJacks. c. The govt can limit the number of companies producing LoJack. d. The govt can randomly select cars to install LoJack. 

Expert Answers

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Presumably, car owners would want to avoid installing this system.  They would want to do so because they could still get the benefits of the system (reduced car theft) without having to actually pay for it (they gain from positive externalities).  Therefore, it would be helpful for the government to do something to avoid this "free rider" problem.  

Of the options you have given us, only D would reduce the costs of negotiation.  It would do this because the government would simply designate which cars would install Lojack and which would not.  This would eliminate the need for car owners to have to "negotiate."  None of the other options do this.  A and C simply reduce the number of Lojacks available but do not determine who will install the ones that do exist.  B allows the public to have input but does not solve the issue of which cars will actually get the device.

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