Consider two ways to protect your car from theft. the club (a steering wheel lock) makes it difficult for a car thief to take your car. lojack (a tracking system) makes it easier for the police to catch the car thief who has stolen it.

a. if a car thief encounters a car with the club and a car without it, the car with the club imposes a externality on the car without the club. a policy implication from this result includes a those who use the club.

b. if a car thief encounters two cars without the club, but the car thief fears a lojack system might be installed in one of the cars, the car with the lojack system imposes a externality on the other car. a policy implication from this result includes a those who use the lojack technology.