Assignment #2: Argument and Market Failure An August 29, 2018 Wall Street Journal article headlined, “In America’s Hottest Drilling Spot, Gas is Going Up
in Smoke.” (See attached article): “…roughly $1 million worth of natural gas is burned away every day, going
to waste…. Shale drillers…say they have no way to move the gas…. Instead, they are setting it on fire, a
practice known as flaring….the volume of gas burned every day would be large enough to supply the daily
needs of states such as Montana or New Hampshire…flaring also produces greenhouse gases equivalent to 2
million cars.” Three problems were just identified in that article – (1) drillers cannot move the gas, (2) potential
energy that could be used is being wasted, and (3) the flared gas is causing environmental problems. This
assignment is focusing on the third problem, but you will be able to use the other two problems to explain what
should be done about the third problem. Your assignment is to write about market failures.
On Tuesday September 18, 2018 the Trump Administration Department of the Interior Bureau of Land
Management announced a final rule which overturns an Obama Administration rule on flaring methane (See
attached press release and the hyperlinked rule).
You are a staff aide for a member of the U.S. Senate who read this Journal article and the Administration’s
press release and is considering how to respond to questions from constituents who may ask about this issue.
Your task is to take an economic argument and put it into language the Senator – your boss — can use to talk to
constituents who are not economists. In particular, you are to discuss whether this third problem —
environmental problems caused by flaring gas – is a market failure that requires government regulation of some
sort or if it is a market issue that is awaiting a market solution. As a comparison, look at problem 1 – drillers
cannot move the gas to market. Is that a market failure that requires government intervention? Reading other
articles provided, one can probably make a convincing argument that the economics of oil shale development
(fracking) provide market signals that will lead to the construction and provision of new sources of
transportation with limited government involvement; in the same way that the movement toward fracking
stimulated the market for sand and water that is used in the production process. Will you make the argument
that the methane emitted when natural gas is flared is an issue that the market will address if there is a demand
for action to address it or will you argue that methane emitted when natural gas is flared is an example of a
market failure) that requires some form of government action to correct the failure and allow the market to work
properly? You will need to identify specifically which type of market failure, e.g., externality or insufficient
information or any other one or combination of failures.
● Your introductory paragraph: introduce the issue of flaring natural gas and the resulting methane release. Briefly explain if this represents a market failure or is just a step in the market working to
provide energy and the market eventually working to eliminate efficiently any pollution problems. If
you propose that there is a market failure, then you need to identify which specific failure and explain
how specifically the market has failed. If you believe that markets could work properly without
government involvement, explain how the market can address the concerns of those who advocate
● Your first body paragraph provides more specifics than your introductory paragraph and should EITHER explain how market failures have caused the problems being discussed and how government
regulation would work to solve the problem of methane release from flaring natural gas (i.e. extend your
introductory remarks to demonstrate how the problems are the direct result of a market failure and how
regulation addresses that failure – the position of the Obama Administration) OR explain how markets
should work to efficiently address the methane issue, why market failures have not caused the problems
posed by advocates of regulation, and how such regulation would interfere with the market (i.e. extend
your introductory remarks to demonstrate how the problems we face are not the direct result of a market
failure and how government regulation would cause problems – the position of the Trump
● Your second body paragraph should create a “counterclaim” or the best possible objections to your argument which you present in the first body paragraph. This is the most challenging section of the
assignment as it requires you to think outside of your own operating logic. You are basically arguing the
other side here.
● Your third body paragraph should rebut the counterclaim and establish the superiority of your initial position. Do not repeat the arguments made in the initial supporting paragraph, but rather point out the
inherent flaws of the counterclaim. It will also allow you to introduce new information as well. Consider
○ “Attack” the assumptions that the counterclaim is making
○ “Attack” the omissions that the counterclaim may have
○ Your own clever “attack”
● Your conclusion should clearly articulate the reader’s takeaway from your argument. How should this shape their outlook and their position on this issue?
Formatting: 750-1000 words, 12 pt. Times New Roman
Single-spaced with double spacing between paragraphs; 1” margins on all sides
APA citations where needed and a works cited/references page
Assignment Due Date: week 5/Revised Assignment Due Date: week 6
Both completed versions (first and second) of the assignment will be submitted on Blackboard and must
be submitted before your section begins on the due date. First drafts are Pass/No Pass, with “No Pass”
resulting in one letter grade reduction from final assignment grade.
All late assignments are subject to a late penalty.
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