externalities 2

externalities 2 - PAM2040 Whattodoaboutexternalities...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
    PAM 2040  What to do about externalities
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Last Time What is an externality? What type of decision will not “work out well” in a free  market? Can you identify externalities graphically? Does the existence of an externality  require   government intervention?
Background image of page 2
Today Assumptions of Coase violated What can the government (the benevolent social  planner) do?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Coerced Internalization What is it the steel plant and fisherman are  fighting over? Who is “responsible” for cleaning up the river? Think about a market for clean water Gov’t can affect prices or quantities in this  market Taxes  Regulation
Background image of page 4
The Market for Pollution
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Two Options for Internalization Levy a  Pigouvian tax  on output equal to MD of  pollution Firms will reduce pollution until tax=cost Set a fixed cap on pollution at P* Need to know what shape of MC curve
Background image of page 6
What if there were two Plants ?
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 10/26/2011 for the course PAM 2040 at Cornell.

Page1 / 17

externalities 2 - PAM2040 Whattodoaboutexternalities...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online