A municipal government introduces an indirect 'green tax' on vehicles entering a city centre to reduce congestion and air pollution. However, this policy leads to a substantial increase in traffic and pollution in the surrounding suburban residential areas as drivers seek to avoid the toll.
This outcome is best described as:
a market failure caused by the underprovision of public goods.
a government failure caused by regulatory capture of the transport authority.
a government failure resulting from unintended consequences of the policy.
a market failure due to asymmetric information between drivers and the government.
