EEC13_Property_rights

EEC13_Property_rights - Chapter 13 Property Rights Slides...

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Chapter 13 Property Rights Slides based on Environmental Economics by Charles Kolstad (2011)
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The term property right refers to a bundle of entitlements defining the owner's rights, privileges, and limitations for use of the resource. The root of the market failure in both public goods and negative externality models is that the property rights of the good are undefined Property Rights
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Efficient Property Right Structure Universality : All resources are privately owned, and all entitlements completely specified. Exclusivity : All benefits that result from owning and using the resources accrue to the owner, and all costs that result from owning and using the resource are borne by the owner. Transferability : All property rights are transferable from one owner to another in a voluntary exchange. Enforceability : Owners are able to protect their property right from involuntary seizure or encroachment by others.
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Example: Car Factory and Refinery We have a refinery and a car factory , complete with paint shop. The car factory is the victim since it needs clean fresh air to put a perfect coat of paint on its new cars. The refinery is the polluter. We have just two players : refinery and car factory. Pollution would be no relevant problem if either (a) the refinery were not there or (b) the car factory were not there. What is the efficient level of Pollution? In Whom should the property rights be vested? Both players are the same. Not obvious who should be Given the right.
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Example : Continued Regarding profits three cases should be considered : 1. Both facilities operate. 2. Car factory shuts down. 3. Refinery shuts down. Why should we consider all the three cases? Because if car factory or refinery is marginally profitable without pollution problem, it may well be more desirable (socially) to shut it down and eliminate the problem. If both facilities operate together socially Efficient level of abatement is : A*
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Example : Efficiency (Continued) Total profit in the three former cases: 1. Both facilities operate : π_r (A*) + π_c (A*) 2. Car factory shuts down : π_r (0)
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EEC13_Property_rights - Chapter 13 Property Rights Slides...

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