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Externality is the benefits or costs imposed on the third party not directly or indirectly involved in consumption or production activity. The paper evaluates the external cost imposed on the society when a rider does not wear helmet. It takes into consideration the immediate cost after getting injured from an accident as well as the indirect cost that society has to bear because of this activity (Baumol & Blinder, 2015). As a result of negative externality, number of accident and hence, injury per accidents are more than optimal level. A counteractive policy in response to this externality is to impose a tax or fines on person for not wearing helmet. The paper examines the efficiency of such policy with some real world example of countries those already have made compulsory to wear helmet while riding.
A helmet is supposed to protect the rider from sustaining severe injury in head in case accidents happened. A rider should wear a helmet in times of riding bicycle. Researches reveals that wearing helmet reduces the possibility of severe head injuries up to 74 percent during accidents with moto vehicles (Levmore, 2014). A person by not wearing helmet not only harm himself but also imposes additional cost on the society. In this context the issue of negative externality needs to be discussed.
Negative externality is defined as an additional cost is incurred from an economic transaction and is suffered by a third party (Hubbard, Garnett & Lewis, 2012). When a bicycle rider without wearing helmet met with an accident, then first the person is picked off to the spot of accidents and is then taken to hospital.
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