This chapter examines how markets can make the car a socially more efficient component of modern society, and discusses what markets cannot do. The idea of the market is a basic economic concept that underlies modern Western society, which enables individuals to choose to participate where they find it worthwhile to trade. The prices revealed by different markets indicate the opportunity costs of different economic decisions. In reality, despite their advantages, markets are not comprehensive, and many resources, the `externalities', are consumed outside markets, so that no market mechanism allocates their effective use. In relation to the car's damage to the environment and health, the present general view seems to be that the market is working imperfectly. Here, the author gives two cautions: (1) as opportunity costs are associated with all actions, there will be some pollution and safety hazard even in an optimal situation, because of the `excessive other costs' of removing these social costs. The question is thus whether markets create damage beyond this level; (2) it is sometimes difficult to know exactly what amelioration is appropriate, because of incomplete scientific knowledge and poor information about social preferences. Thus policy intervention need not bring better environmental and economic results.
Abstract