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Chapt 13 5_16_07-1 - Chapter 13 Government Policies for...

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Chapter 13. Government Policies for Environmental Protection If environmental problems impose significant costs on society, and if private markets are unlikely to address these problems adequately, what can be done? Environmental problems are one of the classic reasons in economic theory for governments to intervene in markets. Unlike the case where all property rights are well defined and private markets lead to efficient allocations, government interference in markets is necessary to increase social benefits, by requiring polluters to consider the effects of their activities. There are, though, many ways that governments can influence pollution generation, and they may lead to different outcomes. This chapter will examine: The complex nature of the pollution problem and the many ways that governments can address that problem. Some of the tools that a government agency can use to address externalities, including standards (also called command and control regulation) and market-based incentives. The advantages and disadvantages of these tools in different settings. What is Being Regulated? Lettuce in the Salinas Valley The purpose of pollution control is to limit some type of damages. Understanding how to control pollution requires a grasp of the processes that create pollution, as well as the processes through which pollution causes damages. To do so, let’s return to the problem of lettuce production in California’s Salinas Valley that has already appeared in Chapters 8 and 9. As we saw there, applying fertilizer and water to the field produced both lettuce and nitrate runoff that contaminated groundwater. The contamination
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problem involves a number of decisions for both the farmer and the regulator. Let’s explore those in depth. Figure 13.1 shows al l the steps from production of goods to damage. Let’s follow the figure starting on the bottom, damage. First, the link between exposure and damages depends on who or what is exposed to the damage. Some people, especially very young babies, are very sensitive to nitrates in water; it can limit their ability to absorb oxygen, which is vital. Older people do not suffer this sensitivity. Two people exposed to the same amount of pollution are likely to experience different damages. Now, let’s go to the lin k between ambient water quality and damage. Does the existence of nitrate in water always cause damage? No, because people can take action to avoid exposure to the pollution. People can use bottled water, for instance, to avoid ingesting nitrates from water. Even if the environment may be quite polluted, people can take precautionary actions to limit damage to their health. Avoiding exposure to water pollution is easier in some cases than others; for instance, bottled water may be inconvenient or expensive. Additionally, people are not the only victims of water pollution; the contaminated groundwater may move into surface water bodies, where it can contribute to growth of algae that suck oxygen out of water and thus kill fish.
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