Diesel emissions, which are regarded as the cost of resident’s health can cause huge negative effects to the national economy. As we all know, diesel emissions create pollutions to the environment and this effects human-beings’ living environment. To fabricate data of diesel emissions is against the business ethics and this provides hidden external externalities to third parties. The pollution is considered as negative externalities of production. By this, it means that the diesel emission of Volkswagen give rise to negative effects on other people.
As the article says that the company of Volkswagen covered up diesel cheating, it claims that they have “clean diesel” but the truth shows that the actual diesel emissions break the ecological equilibrium. This situation can be shown by the graph below
When negative production externality occurs, the market itself overallocates resources and induces the situation that Qmarket is larger than Qoptimum and marginal social costs is larger than marginal social benefits.
This kind of negative externalities created by production goes against the business ethic and confuses the allocation of the free market. There are ways to deal with it like government regulations or market-based policies.
For instance, if the government poses tax to Volkswagen to punish it for its diesel emission, then the marginal private cost MPC will shift leftward to marginal social cost which is MSC. Since the government forces the firms to produce less, pollutant decreases because the cost of production increases.
In conclusion, as the article referred that “To all auto manufacturers that violating laws designed to protect our environment and our public health is unacceptable and will be punished with significant penalties. “The action of Volkswagen’s diesel emission hurts the third parties and its cheat towards consumer also violates the business ethics.
Reference:
“Three U.S. States Sue Volkswagen, Say Executives Covered up Diesel Cheating.” Reuters. Thomson Reuters, 19 July 2016. Web. 12 Sept. 2016.
http://www.reuters.com/article/us-volkwsagen-emissions-idUSKCN0ZZ1X3
