equimarg-tietenberg - Meat Eon Malawian Pa A c,qu LETS...

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Unformatted text preview: Meat? Eon; Malawian. Pa A c,qu LETS First Eguimar’g‘J—n' al Principle (the “Efficiency Equimarginal Principle”): Net benefits are maximized when the marginal benefits from an allocation equal the marginal costs. (see we factouma Firms) A similar, and equally important, equimarginal principle exists for cost—effectiveness: Second Eguimarginal Principle (the Cost-Effectiveness Equimarginal Princi: pie): The least-cost means of achieving an environmental target will have been achieved when the marginal costs of all possible means of achievement are equal. Suppose, for example, we want to achieve a specific emission reduction across a region, and several possible techniques for reducing emissions exist. How much of the con- trol reSponsibiliry should each technique beat? The cost-effectiveness equimarginal principle suggests that the techniques should be 'used such that the desired reduction is achieved and the cost of achieving the last unit of emission reduction (in other ‘ words the marginal connol cost) should be the same for all sources. To demonstrate Why this principle is valid, suppose that we have an allocation of control responsibility where marginal control costs are much higher for one set of techniques than for anothequhis cannot be the least cost allocation since we could lower cost while retaining the same amount of emission reduction. Costs could be lowered by allocating more control to the lower marginal cost sources and less to the high marginal cost sources. Since it is possible to find a way to lower cost, then clearly the initial allocation could not have minimized cost. Once marginal costs are equalized, it becomes impossible to find any lowerncost way of achieving the same degree of emissions reduction; therefore that allocation must be the allocation which minimizes costs. 5&5: TLEDaJaM rte,“ . ohieqdmama Hm; I I RQawLL-Xé QMMKQS Gm WM, 260% ‘ Defining the Efficient Allocation of Pollution 3 4i FlGURE 15.2 EFFICIENT ALLOCATION OF A FUND POLLUTANT. Marginal Marginal Marginal Cost Control Damage (dollars Cost Cost per unit) Total , Total Damage 5 Control Cost ' Cost Quantity of * Pollution 0 0 Emitted (units) Greater degrees of control (points to the left of Q") are inefficient because the further increase in avoidance costs would exceed the reduction in damages. Hence total costs would rise. Similarly, levels of control lower than Q*would result in a lower Cost of control but the increase in damage costs would be even larger, yield.- ing an increase in total cost. Either increasing or decreasing the arnQdunt, controlled causes an increase in total costsiHence 0* must lie-efficient. _ . “THE—diagram Suggests that, under the-conditions presented, the optimal level of pollution is not Zero. If you find this disturbing, remember that we confront this principle every day. Take the damage caused by automobile accidents, for example. Obviously, a considerable amount of damage is caused by automobile accidents. Yet we do not reduce that damage to zero because the cost o£ doing so would be too high. The point is not that we do not know how to stop automobileaccidents. All we would have to do is eliminate automobiles! Rather, the point is that since we value the benefits of automobiles, we take steps to reduce accidents (using speed limits) only to the extent that the costs of accident reduction are commensurate with the damage reduction achieved. The efficient level of automobile accidents is not zero. ...
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equimarg-tietenberg - Meat Eon Malawian Pa A c,qu LETS...

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