Suppose that an ice storm is dumping a wintery mix and school is in session. It will take 10 minutes to scrape the ice from your windshield. The back roads are coated with black ice. Kids slip when they walk on the sidewalk. In other words, it's bad outside. Should school officials cancel classes and send students home or should they keep kids in school and wait until the it's safe to drive? I can't remember school officials ever choosing to wait, yet the expected value of that choice clearly outweights sending students home at the height of the storm.
Clearly, waiting for the salt trucks and plows to secure the road is the optimal strategy. Yet, students are released early exacerbating the externality. The social cost is even higher than the danger of releasing 5,000 children in Muscatine. Parents will take time off of work to get home and pick up children from sitters or babysit. This is the class negative externality case in my opinion. Everyone is acting without thinking about the cost they are imposing on others so the marginal social cost is higher than the marginal private cost. The optimal equilibrium is lower. Clearly, school officials should consider all of these costs and keep students in school.
I don't have to make the decision to release students early. Maybe the community response to my decision would make me unpopular or the threat of a lawsuit makes it an easier strategy. But if the safety of our students is the number one priority, then keeping students in school while a storm is raging is in line with our priorities regardless of the backwash.