They would benefit from the use of ei instruments

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They would benefit from the use of EI instruments, which minimize the cost of reducing pollution. However, this may not be evident to consumers because perceived costs are often lower for C&C instruments. For example, a gasoline tax would be much more efficient than regulating automobile fuel efficiency, but the perceived cost is much higher. Political supply of policy instruments Legislators’ supply of political support for an environmental policy instrument will depend on the political costs and benefits to them. Several factors affecting this are: 1. Background. Legislators tend to be lawyers, not economists, and therefore are more comfortable supporting C&C instruments than EI instruments. 2. There is a political cost to legislators of imposing costs on consumers, and perceived costs tend to be lower with C&C instruments. 3. Symbolism. Imposing strict regulations that are not firmly enforced gives the appearance of improving the environment without incurring the political costs of actually doing so. 4. Uncertainty. EI instruments involve more uncertainty about winners and losers than C&C instruments and the distribution of gains and losses is very important for politicians. In addition, with C&C instruments it is easier to give favored groups special breaks. Economic theory of policy evaluation In our analysis of environmental policy to this point, we have been basing our normative decisions almost entirely on the maximization of total net benefits and referring to this as attaining efficiency. This is the standard approach, but it is also a very incomplete theoretical basis on which to make policy decisions. We will now consider a more general theory of policy evaluation beginning with a more fundamental definition of economic efficiency.
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61 Economic efficiency and equity Economic efficiency (or Pareto optimality) is attained if no reallocation of resources could make anyone better off without making anyone else worse off. Economic efficiency is desirable because attaining it means that all opportunities for making some individuals better off without making anyone else worse off have been achieved. In Figure 8.1, the Grand Utility Possibility Curve (GUPF) shows all possible maximal combinations of utility for two individuals, Sam and Jane. All points on the GUPF are efficient, because an increase in one individual’s utility can be attained only be decreasing the other individual’s utility. Points within the GUPF are inefficient. For example, outcome A is inefficient because moving from inefficient outcome A to any outcome on the line segment B to C would attain efficiency and would be desirable because at least one person would better off and no one worse off. However not all changes from an inefficient outcome to an efficient outcome are necessarily desirable. For example, a move from outcome A to outcome D would also attain efficiency, but would not necessarily be desirable because it would make one person, Jane, worse off. To know whether a move that makes some individuals better off and others worse off is desirable, we also need to consider equity.
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