Traffic

As reader WC points out, there are two different ways of dealing with traffic jams. Traffic hurts the driver of an individual car and the drivers around him because both of them become stuck in jams. Since all the harm done (the cost) is not borne by the driver that just entered the road, it means that he has created a negative externality that will lead to too many people entering the road and--traffic.

There are two ways to try and solve this problem. Building more roads is not one of them because less traffic will just cause more people to drive until you are back at the same old traffic levels. HOV lanes work by forcing people to take cars off the road in exchange for less traffic (at least in the HOV lane). Or you can simply levy congestion charges, as they have in London.

I actually visited London recently and lived in the area where the charges are in effect. It was remarkably free of traffic jams, which, I am told, had been endemic before.