THERE was a court direction. On Diwali night, crackers were to be burst between 6 and 10 in the evening. And the executive was supposed to implement this direction. There were plenty of ads in newspapers and on TV, requesting citizens to comply. Switch from personal cracker bursting to community-based ones. At 8, we remarked things were quieter compared to other years. Law abiding citizens were complying. The boycott among school children was proving to be effective. But that was at 8. Things changed at 11. Goaded no doubt by the court direction, many families in the neighbourhood woke up then. A rocket fell on our roof, another shattered a window pane in the house opposite. No one objected because the inmates were out celebrating somewhere else.

Decibel levels rose as bombs were burst all round us. I noticed that school children from schools that were most active in pushing for a boycott were the ones who were most active in bursting crackers. And so it went on till 2 in the morning. Next morning, newspapers proclaimed that decibel levels in many parts of Delhi were lower compared to last year. But Vasant Kunj, where we live, was an exception. Cops had not attempted to enforce the court direction. Who would dare? They decided to leave it to public consciousness.

Public consciousness is one thing. Law is another. If we are going to leave everything to public consciousness and perhaps the Coase theorem, there is no need for many laws. Fundamentally, we are talking about negative externalities. Be it crackers or be it smoking. Should negative externalities be handled through bans that run into problems of enforcement?

Take the smoking example. Courts have again instructed that smoking should be banned in public places. Forget enforcement for the moment. There is a great debate about what is a public place and what is not, railway platforms being an example. This is not a problem that plagues India alone. British courts have also come up with strange judgements. Is a private car a public place or a private one? According to British courts, a private car is a public place when it is stationary. But when it is moving, it becomes a private place. So if you want to smoke, you had better be driving and not parked. The idea is that anything enclosed (like a cinema hall) is a public place and a stationary car is enclosed. But anything open (like roads) is not a public place and a moving car is no longer enclosed. Sounds bizarre, but that happens to be the law.

Ask any economist about what should be done for negative externalities or public bads and you will come up with an unambiguous answer. Use taxes. Subsidise positive externalities and tax negative ones. The Coase theorem is about compensation and if the conditions of the Coase theorem are strictly met, no laws are necessary. Unfortunately, transaction costs make such compensatory arrangements an impossible exercise. Taxes form one leg of the compensation principle. You tax those who are producing the public bads, but don’t necessarily compensate those who are suffering from the production of public bads. The logical solution, therefore, is not to ban crackers or smoking, but hike tax rates on these and let the cops instead do things they are supposed to do.

Why don’t we implement such notions? I think there are two reasons, one obvious and the other less so. The obvious answer is fiscal distortions. Smoking is not just about cigarettes, but bidis and other assorted stuff produced in the small-scale and unorganised sectors. These are generally outside the indirect tax net. As for crackers in Sivakasi or elsewhere, they are completely outside the indirect tax net. There is, therefore, an enforcement problem in the tax idea as well, quite apart from silly arguments about employment suffering. I am not sure how serious this compliance issue is, though. After all, there is a distribution chain. You may not be able to tax something at the point of production. But it should be easier to tax it at the point of sale. If not retail sale, certainly wholesale sale. I suspect such attempts are not made because of the non-obvious reason. We don’t like tax-based disincentives. They are market-based. In a fundamental sense, we distrust markets. Instead, we want the government to do something. We want courts to do something. We want Parliament to do something.

Nowhere is this as evident as in the matter of reservations, for women or for backward sections. This is extremely controversial and blood pressures rise. But every economist ought to argue that reservations are inefficient. They would have been inefficient even if there had been reservations for men or for forward sections. Biases and discrimination certainly exist. But raising public consciousness apart, the right way to remedy these is through price signals. Halve stamp duties for those who are discriminated against, halve deposits in elections, provide Below the Poverty Line food at half the rate if the head of the household is a woman or backward. The examples are countless and my intention is not to try and enumerate all the possibilities. Instead, my point is a simple one. We seem to prefer State intervention to market-based intervention, even when market-based intervention is possible. And therein lies the problem. There will be an over-abundance of legislation, but precious little of enforcement.

Can you visualise cops descending on households after 10 in the night next Diwali? Or better still, visualise the following bizarre scenario. You are smoking a cigarette in your car while driving. Following British courts, that is perfectly legal. The car has now stopped at a red light. Smoking has now become illegal and before you put out the cigarette, a cop descends on you. If you think this example bizarre, please note that this is precisely what is happening with mobile phones. Except that the legality is then the converse. About enforcement, the less said the better.