Geographic Considerations Notes
Geographic location of emissions can have a profound
impact on the damages the pollution generates for some
categories of pollution.
Central to the importance of location of emissions is the
manner in which the pollution di
Marketable Pollution Permits Notes
Marketable pollution permits are permits which give a firm
the right to emit a specific number of units of pollution.
Polluters are free to buy and sell these rights to pollute.
A marketable pollution permit system can b
Ambient based Permit System Notes
A receptor-based or ambient-based system allocates
pollution receptors across the subregion.
Locations relatively close to, and downwind from, the polluter
may require more permits.
Dispersion coefficients are used to hel
Direct Production of Environmental Quality Notes
breaching of dams,
stocking of fish,
creation of wetlands,
treatment of sewage, and
toxic waste site cleanup.
These are sometimes ameliorative actions.
Choosing the Correct Level of Environmental Quality Notes
Zero pollution is not possible/desirable for two reasons:
The reduction of pollution will have opportunity costs.
The Law of Mass Balance makes a choice of zero
The Law of Ma
Coase Theorem Notes
If there are no transaction costs and property rights are well
defined, then voluntary transactions will eliminate any
distortions in resource allocation stemming from an
externality and the outcome is independent of the property
Marginal Abatement Cost Function Notes
Marginal abatement costs rise as cheaper options for
reducing pollution are exhausted and more expensive steps
must be taken.
The decreasing slope indicates that the costs of reducing
pollution increases at an increa
Pursuing Environmental Quality with Economic Incentives
Economists advocate policies based on economic incentives
for two primary reasons:
Economic incentives minimize total abatement costs by
equating marginal abatement costs across polluters
Quality with Command and Control Policies Notes
In this example firm 1 should control 40 units and firm 2
should control 60 to achieve least cost of control
This solution takes into account the fact that different firms
have different costs of control
The Role of Command and Control Policies Notes
Despite their typical inability to equate marginal abatement
costs across polluters, command and control policies may
still be the most desirable policy instrument under the
Types of Government Intervention Notes
There are five broad classes of government intervention:
Direct production of environmental quality
Command and control regulations
Each of these represents a di
The Marginal Damage Function Notes
The marginal damage function represents the damages that
pollution generates by degrading the environment.
Even if these impacts are not quantifiable, the marginal
damage function is useful for thinking about the relatio
Social Costs Notes
The optimal level of pollution is E1.
The actual level of pollution is E2.
Total costs associated with pollution have been increased by
the area of triangle abc.
This represents marginal damages greater than marginal
abatement costs for
Bottom Line on Coase arguments Notes
Another problem associated with the Coase example can
occur when the allocation of property rights would signal
entry and exit in response to those rights.
If ranchers have the right to let their cattle roam without
Economic incentives and incentives for research Notes
If a firm is faced with a tax on its pollution, it has the
incentive to find ways to reduce its pollution cheaply
The motivation that taxes provide for technology
development is an advantage of taxes o
Government Intervention in Market Failure Notes
Should the Government Intervene? Pigouvian Taxes
A.C. Pigou (1938) argued that an externality cannot be
mitigated by contractual negotiation between the affected
Pigou argued that direct coercion by