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25 - Externalities II Pigous Solution to Pollution...

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Voluntary Programs Only a tiny fraction of American companies that pollute have signed up for President Bush's voluntary program to reduce emissions of gasses that many scientists believe cause global warming, a newspaper reports. … the Washington Post reports only 50 companies have signed up to be "Climate Leaders," the name of the administrations program inviting businesses to pledge to reduce their emissions by 10 percent. Of those 50, only 14 have established goals to reduce emissions of gasses like carbon dioxide that are suspected of raising world temperatures, leading to possible effects like altered weather patterns, disappearing habitats for key species and rising sea levels, the Post reports.” (www.cbsnews.com/stories/2004/01/01/tech/main591086.shtml) “For more than 20 years, the “Polluter Pays Principle” has been the cornerstone of U.S. environmental policy. Not only has this principle made it possible to clean up hundreds of the worst toxic waste cites, it also caused private industry to better manage its pollution and waste. Carol Browning Former EPA Administrator (Source: NY Times, 3/1/2002) Polluter Pays Principle Externalities II: Pigou’s Solution to Pollution
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Mankiw #7: Governments can sometimes improve on market outcomes. In Doing So, It Helps to Ask Three Questions 1. To what extent does society want to rely on market processes, and to what extent do they want government intervention? 2. What is the desirable level of pollution or pollution abatement? (social optimum) 3. What is the most efficient way to get to the pollution abatement objective? (i.e., How do we get from private “market” optimum to social optimum?)
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