common property

common property - Common Property Externalities Public...

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Common Property Externalities Public Goods
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Main topics 1. externalities 2. inefficiency of competition with externalities 3. market structure and externalities 4. allocating property rights to reduce externalities 5. common property 6. public goods
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Externalities externality occurs if someone's consumption or production activities hurt or help others outside a market well-being of a consumer or production capability of a firm are affected directly by actions of other consumers or firms, rather than indirectly through changes in prices
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Inefficiency of competition with externalities competitive firms and consumers do not have to pay for harms of their negative externalities so they produce excessive pollution
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Welfare Effects of Pollution in a Competitive Market
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Reducing externalities competitive markets produce excessive negative externalities hence government intervention may benefit society
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Government intervention direct approach: emissions tax, fee, effluent charge indirect approach: emissions standard (quantity restrictions on outputs or inputs) because output and pollution move together, regulating either works
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Taxes to Control Pollution
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Optimal regulation unfortunately, government usually does not know enough to regulate optimally government needs to know: marginal social cost curve demand curve for product how pollution varies with output also has to enforce its regulations
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Cost-benefit analysis instead of using the supply-and-demand analysis to show that competitive market produces too much pollution use a cost-benefit diagram welfare is maximized by reducing output and pollution until the marginal benefit from less pollution equals the marginal cost of less output
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Cost-Benefit Analysis of Pollution
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Emission standards for ozone ozone is a major air pollutant it is formed in the atmosphere through a chemical reaction between organic gases and nitrogen oxides in sunlight
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Standards Clean Air Act of 1990 sets national air- quality standards for major pollutants: C 0.12 parts per million (ppm) California Air Resources Board (CARB) has an even tighter standard: 0.09 ppm
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Costs and benefits cost of reducing ozone: greater expenses of manufacturing driving benefit better health in urban areas increased agricultural yields in rural areas consequently, optimal level differs in urban and rural areas
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Los Angeles benefits of reducing ozone level > costs over past several decades however, CA standards may be too strict even in LA Krupnick and Portney (1991) est. that reducing ozone to CA standard has an annual benefit to human health and materials of about $4 billion annual cost about $13 billion
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Emissions Standards for Ozone
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This note was uploaded on 08/01/2008 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.

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common property - Common Property Externalities Public...

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