Kuwait Case Essay

Total Length: 935 words ( 3 double-spaced pages)

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In delineation, externalities are the indirect effects of consumption, production, and investment decisions of people, households, and firms, which have an impact of people regardless of how minimal they are (Helbling, 2012). These indirect effects are some of the key reasons why governments often intervene in the economic realm. A great deal of these externalities are encompassed in technical externalities, which are the indirect effects that have an influence on the consumption and production prospects of other individuals, however the prices of the goods or services do not take these externalities into consideration. Consequently, there are dissimilarities and variances between private returns or costs and the returns or costs to society (Helbling, 2012). This paper will discuss both positive and negative externalities using examples of both externalities from the activities of public and private sector organizations operating in Kuwait.

Positive Externalities and Negative Externalities

Positive externalities take into account the variance between private and social gains. In this case, the private returns generated are smaller in comparison to social returns. On the other hand, negative externalities take into account the decisions based solely on the direct cost of, profit opportunity from production, and does not take into account the indirect costs of those harmed by the action (Helbling, 2012).

One of the main positive externalities perceived in Kuwait is oil wealth, in which the social gains generated are greater compared to private gains. Kuwait's accomplishment is that it has, on the whole, employed its oil revenue to make available a high standard of living for complete Kuwaiti citizens, whereas to a much lesser magnitude also profiting non-Kuwaitis. The wealth generated from oil has been responsible for the transformation of Kuwait from a desert expanse into a contemporary city-state (El-Katiri et al., 2011). In particular, the oil wealth has generated a comparatively democratic economy centered on a comprehensive system of distribution that provides the citizens of Kuwait with basic services that consist of free healthcare, education, and social security. Considering this, the positive externality is that the oil wealth of Kuwait is that it is successfully utilized to benefit its residents (El-Katiri et al., 2011).

Nevertheless, at the same time, there has developed a negative externality. In accordance to El-Katiri et al. (2011), the policies of rent distribution established and implemented by Kuwait have advanced in an unplanned and extemporized way into an ungainly system with considerable misrepresentations, falsifications, inadequacies and institutional insufficiencies. These constitute of the long-standing employment of subsidies to energy and other utilities that.....

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Al-Bassam, E., & Khan, A. (2004). Air pollution and road traffic in Kuwait. WIT Transactions on The Built Environment, 75.

El-Katiri, L., Fattouh, B., & Segal, P. (2011). Anatomy of an oil-based welfare state: Rent distribution in Kuwait. London School of Economics.

Helbling, T. (2012). Externalities: Prices Do Not Capture All Costs. International Monetary Fund. Retrieved from: http://www.imf.org/external/pubs/ft/fandd/basics/external.htm

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