andPublicGoods(微观经济学-华侨大学,JeffCaldwepjg.pptx

Chapter 18Externalities and Externalities and Public GoodsPublic Goods1 Chapter 1Topics to be Discussedn Externalitiesn Ways of Correcting Market Failuren Externalities and Property Rightsn Common Property Resources2 Chapter 1Topics to be Discussedn Public Goodsn Private Preferences for Public Goods3 Chapter 1Externalitiesn Negativel Action by one party imposes a cost on another partyn Positivel Action by one party benefits another party4 Chapter 1External Costn Scenariol Steel plant dumping waste in a riverl The entire steel market effluent can be reduced by lowering output(fixed proportions production function)5 Chapter 1External Costn Scenariol Marginal External Cost(MEC)is the cost imposed on fishermen downstream for each level of production.l Marginal Social Cost(MSC)is MC plus MEC.6 Chapter 1MCS=MCIDP1Aggregate social cost ofnegativeexternalityP1q1Q1MSCMSCIWhen there are negativeexternalities,the marginalsocial cost MSC is higherthan the marginal cost.External CostsFirm outputPriceIndustry outputPriceMECMECIThe differences isthe marginal externalcost MEC.q*P*Q*The industry competitiveoutput is Q1 while the efficientlevel is Q*.The profit maximizing firmproduces at q1 while the efficient output level is q*.7 Chapter 1External Costn Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.8 Chapter 1Externalitiesn Positive Externalities and Inefficiencyl Externalities can also result in too little production,as can be shown in an example of home repair and landscaping.9 Chapter 1MCP1External BenefitsRepair LevelValueDIs research and development discouraged by positiveexternalities?q1MSBMEBWhen there are positiveexternalities(the benefitsof repairs to neighbors),marginal social benefitsMSB are higher thanmarginal benefits D.q*P*A self-interested home ownerinvests q1 in repairs.Theefficient level of repairsq*is higher.The higher priceP1 discourages repair.10 Chapter 1Ways of Correcting Market Failuren Assumption:The market failure is pollutionl Fixed-proportion production technologyuMust reduce output to reduce emissionsuUse an output tax to reduce outputl Input substitution possible by altering technology11 Chapter 1The Efficient Level of EmissionsLevel of Emissions246Dollarsper unitof Emissions0 2 4 6 8 10 12 14 16 18 20 22 24 26MSCMCAE*The efficient level ofemissions is 12(E*)where MCA=MSC.Assume:1)Competitive market2)Output and emissions decisions are independent3)Profit maximizing output chosenAt Eo the marginalcost of abating emissionsis greater than themarginal social cost.E0At E1 the marginalsocial cost is greaterthan the marginal benefit.E1Why is this more efficientthan zero emissions?12 Chapter 1Ways of Correcting Market Failuren Options for Reducing Emissions to E*l Emission StandarduSet a legal limit on emissions at E*(12)uEnforced by monetary and criminal penaltiesuIncreases the cost of production and the threshold price to enter the industry13 Chapter 1Standards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*StandardFee14 Chapter 1n Options for Reducing Emissions to E*l Emissions FeeuCharge levied on each unit of emissionWays of Correcting Market Failure15 Chapter 1TotalAbatement CostCost is less than thefee if emissions were not reduced.Total Feeof AbatementStandards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*Fee16 Chapter 1n Standards Versus Feesl AssumptionsuPolicymakers have asymmetric informationuAdministrative costs require the same fee or standard for all firmsWays of Correcting Market Failure17 Chapter 1Firm 2s ReducedAbatementCostsFirm 1s IncreasedAbatement CostsMCA1MCA2The Case for FeesLevel of Emissions246Fee perUnit ofEmissions0 1 2 3 4 5 6 7 8 9 10 11 12 1313514The cost minimizing solutionwould be an abatement of 6for firm 1 and 8 for firm 2 andMCA1=MCA2=$3.3.752.50The impact of a standard ofabatement of 7 for both firmsis illustrated.Not efficient becauseMCA2 MCA1.If a fee of$3 was imposedFirm 1 emissions would fallby 6 to 8.Firm 2 emissionswould fall by 8 to 6.MCA1=MCA2:efficient solution.18 Chapter 1n Advantages of Feesl When equal standards must be used,fees achieve the same emission abatement at lower cost.l Fees create an incentive to install equipment that would reduce emissions further.Ways of Correcting Market Failure19 Chapter 1ABC is the increasein social cost less thedecrease in abatementcost.MarginalSocialCostMarginal Costof AbatementThe Case for StandardsLevel of EmissionsFee perUnit ofEmissions0 2 4 6 8 10 12 14 16246810121416EBased on incompleteinformation standard is 9(12.5%decrease).ADE ABCDABCBased on incompleteinformation fee is$7(12.5%reduction).Emission increases to 11.20 Chapter 1n Summary:Fees vs.Standardsl Standards are preferred when MSC is steep and MCA is flat.l Standards(incomplete information)yield more certainty on emission levels and less certainty on the cost of abatement.Ways of Correcting Market Failure21 Chapter 1n Summary:Fees vs.Standardsl Fees have certainty on cost and uncertainty on emissions.l Preferred policy depends on the nature of uncertainty and the slopes of the cost curves.Ways of Correcting Market Failure22 Chapter 1n Transferable Emissions Permitsl Permits help develop a competitive market for externalities.uAgency determines the level of emissions and number of permitsuPermits are marketableuHigh cost firm will purchase permits from low cost firmsWays of Correcting Market Failure23 Chapter 1n Questionl What factors could limit the efficiency of this approach?Ways of Correcting Market Failure24 Chapter 1The Costs and Benefitsof Reduced Sulfur Dioxide Emissionsn Cost of Reducing Emissionsl Conversion to natural gas from coal and oill Emission control equipment25 Chapter 1n Benefits of Reducing Emissionsl Healthl Reduction in corrosionl AestheticThe Costs and Benefitsof Reduced Sulfur Dioxide Emissions26 Chapter 1Sulfur Dioxide Emissions ReductionsSulfur dioxide concentration(ppm)2040600Dollarsperunit ofreduction0.02 0.04 0.06 0.08Marginal Social CostMarginal Abatement CostObservations Observations MAC=MSC.0275 MAC=MSC.0275.0275 is slightly below actual emission level.0275 is slightly below actual emission level Economic efficiency improved Economic efficiency improved27 Chapter 1Emissions Trading and Clean Airn Bubblesl Firm can adjust pollution controls for individual sources of pollutants as long as a total pollutant limit is not exceeded.n Offsetsl New emissions must be offset by reducing existing emissions u2000 offsets since 197928 Chapter 1n Cost of achieving an 85%reduction in hydrocarbon emissions for DuPontl Three Optionsu 85%reduction at each source plant(total cost=$105.7 million)u 85%reduction at each plant with internal trading(total cost=$42.6 million)u 85%reduction at all plants with internal and external trading(total cost=$14.6 million)Emissions Trading and Clean Air29 Chapter 1n 1990 Clean Air Actl Since 1990,the cost of the permits has fallen from an expected$300 to below$100.n Causes of the drop in permit prices l More efficient abatement techniquesl Price of low sulfur coal has fallenEmissions Trading and Clean Air30 Chapter 1n Recyclingl Households can dispose of glass and other garbage at very low cost.l The low cost of disposal creates a divergence between the private and the social cost of disposal.Ways of Correcting Market Failure31 Chapter 1The Efficient Amount of RecyclingScrapCost0 4 8 12MCRMSCm*With a refundable deposit,MC increases andMC=MSC=MCR.MC+per unit refundMCm1Without market interventionthe level of scrap will be at m1 and m1 m*.32 Chapter 1Refundable DepositsAmount of Glass$DPrice falls to P and the amount of recycled glass increases to M*.SvSrSThe supply of glass is the sum of the supplyof virgin glass(Sr)and the supply of recycledglass(Sr).M1PWithout refunds the price of glass is P and Sr is M1.SrSPM*With refunds Sr increasesto Sr and S increases to S.33 Chapter 1Externalities and Property Rightsn Property Rightsl Legal rules describing what people or firms may do with their propertyl For exampleuIf residents downstream owned the river(clean water)they control upstream emissions.34 Chapter 1n Bargaining and Economic Efficiencyl Economic efficiency can be achieved without government intervention when the externality affects relatively few parties and when property rights are well specified.Externalities and Property Rights35 Chapter 1Profits Under AlternativeEmissions Choices(Daily)No filter,not treatment plant 500 100 600Filter,no treatment plant 300 500 800No filter,treatment plant 500 200 700Filter,treatment plant 300 300 600Factorys Fishermens TotalProfit Profit Profit36 Chapter 1n Assumptionsl Factory pays for the filterl Fishermen pay for the treatment plantn Efficient Solutionl Buy the filter and do not build the plantExternalities and Property Rights37 Chapter 1