Managerial Economics Case

NIGHT MARKET EXTERNALITIESA VISIT TO SHILIN, TAIWAN’S MOST POPULAR NIGHT MARKETELAINE KAO, NOAH KERCHER, HERVE SIONE, JOSE ASTORGA

Night Market Fun Facts

Dates as far back as 836 AD In ancient China, markets that operated at night were known as

ghost markets. Song period (960-1279)Night Markets were also known to have

included brothels due to being frequently located near business districts and red light districts.

More than 300 night markets in Taiwan.

Bubble Milk Tea

Stinky Tofu

Pig Blood Cake

Externality

Is a cost or benefit which affects a party who did not choose to incur that cost or benefit.

Arises when one party directly conveys a benefit or cost to others (not through a market).

A consequence of an economic activity that is experienced by unrelated third parties. An externality can be either positive or negative.

Positive Externalities

Buyers (local and tourists) have a variety of stores in one single place.

Helps promote small entrepreneurship (family business).

More potential clients for neighboring businesses.

Promotes tourist’s interest in Taiwan, helps economy.

Real estate prices go up in some cases.

Taipei Times

“Shida area shuts off lights in protest”

LOST HOPE?As many businesses in the night market area are in apparent violation of city bylaws, some are making plans to close down their shops by the end of the monthBy Jake Chung  /  Staff Writer, with CAN

Shida area shuts off lights in protest - Taipei Times

Shida Case Local Residents:

Local residents are emphasizing that the Shida district has long been designated as a “cultural and educational region” and claim that all they want is to restore peace and serenity in a cultural environment.

City Government: Following a protest by residents of the area in October 2011, Taipei Mayor Hau Lung-bin announced that‘ no further expansion of the Shida Night Market would be permitted‘. Citing by rule that states commercial services as restaurants, retail stands and shops are not allowed to be operated in lanes with a width of under 6 meters.

Shop/Restaurant Owners: In April 2012, the city began its first wave of inspections and finds. More than 400 stores in the area switched off their lights for 30 minutes to protest against the forced closures of stores in the area, in hopes that it would persuade the Taipei City Government to listen to their pleas and offer a channel of communication.

Negative Externalities

Increased pollution (waste, noise, smell)

Increased traffic in the neighborhood, harder for pedestrians and vehicles to transit, crowded MRT stations.

Disputes between communities and night markets, government must intervene, more work for government (Shida).

Department stores lose customers to night markets.

Real estate of surrounding property goes down in some cases.

Discussion Question

What can the government do to diminish the negative externalities of noise, smell and waste pollution caused by the night markets?

Possible Strategies

Have more garbage cans. Cleanup tax on the business

owners. Fees or tickets for littering. Zoning laws to separate

residential from commercial. Separate clothing section from

food section. Provide incentives, like tax cuts

and awards for businesses that follow proper disposal of wastes.

Sources Buchanan, James; Wm. Craig Stubblebine (November 1962).

"Externality". Economica 29 (116): 371–384. Lehman, Dale; Png Ivan. Managerial Economics. Oxford, UK.

Blackwell Publishing. http://www.taipeitimes.com/News/front/archives/2012/02/26/2003

526389 http://www.investopedia.com/terms/e/externality.asp http://en.wikipedia.org/wiki/Night_markets_in_Taiwan http://www.stlouisfed.org/education_resources/economic-

lowdown-podcast-series/externalities/