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Chapter 10 - Chapter 10 Chapter Economics and Economics...

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Unformatted text preview: Chapter 10 Chapter Economics and Economics Environment Environment 10.1 ENVIRONMENTAL PROBLEMS PROBLEMS Reasons for Reluctance because of benefit, it is difficult to demand that because people in developing countries should give up economic opportunities for the sake of the environment. environment. because of individual freedom, governments are because reluctant to tell consumers what to buy and producers how to produce. producers disagreement about the level of environmental disagreement damage and disagreement about the best way to limit or prevent it. limit Environmental Debates Environmental Views about Environmental Issues Intergenerational equity the goal of trying to make sure that future the generations have access to resources and the natural would to at least an equal extent to that of current generations. to environmental capital sustainable development 10.2 MARKET FAILURE AND EXTERNALITIES EXTERNALITIES Market failure the situation that arises when the actions of the some people adversely and significantly affect others in one or more ways. affect The inability of some unregulated markets to The allocate resources efficiently. allocate Externalities Externalities Externality something that result from the actions of a person or persons, something that affect others who are not parties to the original action. that one party undertaking an action to gain a benefit, while one another party has to bear some cost associated with that action. action. Negative externality the cost that the other people have to carry. Positive externality without some form of intervention or market adjustment, the without producers in each cases do not pay that cost. producers Summarize: the government can internalize the externality by taxing goods the that have negative externalities and subsidizing goods that have positive externalities. have 10.3 ENVIRONMENTAL POLICIES: DEALING WITH EXTERNALITIES EXTERNALITIES 1. Regulation government can remedy an externality by government making certain behaviors either required or forbidden. forbidden. a politically, scientifically or economically politically, optimal level of activity. optimal 2. Tradeable Rights and Permits Permits these could be sold at a fixed price to these each of the producers or a more market orientated approach would be to auction them to the highest bidder. them this gives firms time to adjust and gives this them more management freedom. them 3. Incentives and Disincentives 3. the government could persuade the consumers to change their behavior and this would then send a market signal to producers to be environmentally friendly. producers 4. Green Taxes 4. Pigovian Tax a tax enacted to correct the effects of a tax negative externality. negative Arthur Pigou, 1877-1959 Compare: Regulation: not exceed 18 litres/wk Green Tax: $20 for each ton of paper Preference Preference 1. 2. 3. 4. Tax is just as effective as a regulation in reducing the overall Tax level of pollution. The higher the tax, the larger the reduction in pollution. pollution. Tax reduces pollution more efficiently. It places a price on the Tax right to pollute, which allocates pollution to those factories that face the highest cost of reducing it. face Tax is better for the environment. Under the command-andcontrol policy of regulation, the factories have no reason to control reduce emission further. By contrast, tax gives the factories an incentive to develop cleaner technologies, because it would reduce the amount of tax the factory has to pay. reduce Conclusion: Unlike other taxes, e.g. income tax, distort incentives and move the allocation of resources away from the social optimum. Tax raises revenue for the government, also enhance economic efficiency, the bystanders who are affected are also be cared. are 5. Negotiation and Private Bargains Bargains Coasian bargains most efficient means of achieving a social optimum most was for the winners to compensate the losers. was Coase theorem the proposition that if private parties can bargain the without cost over the allocation of resources, they can solve the problem of externalities on their own. can The initial distribution of rights does not matter The for the market’s ability to reach the efficient outcome. outcome. 10.4 ENVIRONMENTAL POLICIES: WORKING WITH MARKET MARKET ...
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