EC 201 - • Garbage some cities $1 per bag of garbage o Idea less garbage o Actual elast garbage small – elast bags large elast garbage in woods

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EC 201 11-21-08 Theme: to clean up efficiently, get incentives right **Efficient (cost minimizing) pollution abatement **MC of abatement same in all polluting processes Blunt regulations won’t achieve efficiency But Pigouvian taxes (pay tax for each unit of pollution) or Pigouvian licenses (buy license to pollute for each unit) will achieve efficiency Pig. Mechanism → cost to firm if it pollutes →benefit to cleaning up MB of abatement is tax or license fee saved Each firm cleans up optimally: o MCA x =tax per unit o MCA y =tax per unit o MCA x =MCA y efficient!!! 1990-marketable licenses for SO 2 Pig. Tax would raise revenue for govt. →could ↓ other taxes ↑ “good tax” ↓ “bad tax” – more efficient tax system If govt. auctions licenses, revenue for govt. 1990-licenses given to firms o Buy + sell among themselves Carbon- “Cap (limited no. of licenses) + trade (marketable)”
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Unformatted text preview: • Garbage- some cities $1 per bag of garbage o Idea: less garbage o Actual: elast. garbage small – elast. bags large- elast. garbage in woods large o Better policies: curbside recycling, deposit +return • Mexico City: dirty, air, much from autos “Day without a car” o Idea: less driving o Actual: more cars, dirtier cars • Central London: congestion charge o Idea: less traffic jams + pollution o Actual: fewer traffic jams + pollution • Nature of congestion externality o Extra cars slow down all cars • Solution to congestion externality: congestion charge, toll • Congestion is example of “common property resource” problem • Others: fishing in ocean no one owns → overfishing • Open range land→ overgrazing • Solution: property rights, build fences •...
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 - • Garbage some cities $1 per bag of garbage o Idea less garbage o Actual elast garbage small – elast bags large elast garbage in woods

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