曼昆《经济学原理》英文课件princ-ch10-presentation(2010).ppt

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1、 2010 Wuhan UniversityC H A P T E RExternalitiesEconomicsP R I N C I P L E S O FP R I N C I P L E S O FN.Gregory Mankiw10In this chapter,look for the answers to these questions:What is an externality?Why do externalities make market outcomes inefficient?How can people sometimes solve the problem of

2、externalities on their own?Why do such private solutions not always work?What public policies aim to solve the problem of externalities?1EXTERNALITIES2A ReviewOne basic principle of economics:Markets are usually a good way to organize economy activity.In absence of market failures,the competitive ma

3、rket outcome is efficient,maximizes total surplus.Individuals choose their courses of action by weighing the expected marginal benefits of any decision against its expected marginal costs.EXTERNALITIES3IntroductionOne type of market failure:externalityAn externality arises when a person engages in a

4、n activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect.Externalities can be negative or positive,depending on whether impact on bystander is adverse or beneficial.EXTERNALITIES4IntroductionSelf-interested buyers and sellers neglect

5、 the external costs or benefits of their actions,so the market outcome is not efficient.Another principle of economics:Governments can sometimes improve market outcomes.In presence of externalities,public policy can improve efficiency.EXTERNALITIES5A storyScenarioMotorcycle rider leaves home early i

6、n the morning.Imposes on neighbors still asleep.QuestionWhat kind of externality exists here?How can the externality be solved?In the real world,the story happens every day.Why dont people use the way above to solve the problem?EXTERNALITIES6Examples of Negative ExternalitiesAir pollution from a fac

7、toryThe neighbors barking dogLate-night stereo blasting from the dorm room next to yoursNoise pollution from construction projectsHealth risk to others from second-hand smokeTalking on cell phone while driving makes the roads less safe for othersEXTERNALITIES70123450102030Q(gallons)P$The market for

8、gasolineRecap of Welfare EconomicsDemand curve shows private value,the value to buyers(the prices they are willing to pay).Supply curve shows private cost,the costs directly incurred by sellers.The market eqm maximizes consumer+producer surplus.$2.5025EXTERNALITIES80123450102030Q(gallons)P$The marke

9、t for gasolineAnalysis of a Negative ExternalitySupply(private cost)External cost=value of the negative impact on bystanders=$1 per gallon(value of harm from smog,greenhouse gases)Social cost=private+external costexternal cost EXTERNALITIES90123450102030Q(gallons)P$The market for gasolineAnalysis of

10、 a Negative ExternalityDSSocial costThe socially optimal quantity is 20 gallons.At any Q 20,social cost of the last gallon isgreater than its value to society.25EXTERNALITIES100123450102030Q(gallons)P$The market for gasolineAnalysis of a Negative ExternalityDSSocial costMarket eqm (Q=25)is greater t

11、han social optimum (Q=20).25One solution:tax sellers$1/gallon,would shift S curve up$1.EXTERNALITIES11Examples of Positive ExternalitiesBeing vaccinated against contagious diseases protects not only you,but people who visit the salad bar after you.R&D creates knowledge others can use.People going to

12、 college raise the populations education level,which reduces the cost to manage the society.Thank you for not contaminating the fruit supply!EXTERNALITIES12Positive ExternalitiesIn the presence of a positive externality,the social value of a good includesprivate value the direct value to buyersexter

13、nal benefit the value of the positive impact on bystandersThe socially optimal Q maximizes welfare:At any lower Q,the social value of additional units exceeds their cost.At any higher Q,the cost of the last unit exceeds its social value.A C T I V E L E A R N I N G A C T I V E L E A R N I N G 1 1 Ana

14、lysis of a positive externality13The market for flu shotsDS010203040500102030PQ$External benefit=$10/shotDraw the social value curve.Find the socially optimal Q.What policy could solve the problem of externality?A C T I V E L E A R N I N G A C T I V E L E A R N I N G 1 1 Answers14Socially optimal Q

15、=25 shots.To solute the problem,use subsidy=$10/shot.The market for flu shotsDSSocial value=private value+$10 external benefit010203040500102030PQ$external benefit25EXTERNALITIES15“Internalizing the Externality”Internalizing the externality:altering incentives so that people take account of the exte

16、rnal effects of their actionsTax/subsidy is a way to internalize the externality.In the example of negative externality,the$1/gallon tax on sellers makes sellers costs=social costs.When market participants must pay social costs,market eqm=social optimum.(Imposing the tax on buyers would achieve the

17、same outcome;market Q would equal optimal Q.)EXTERNALITIES16 If negative externalitymarket quantity larger than socially desirableIf positive externalitymarket quantity smaller than socially desirableTo remedy the problem,“internalize the externality”tax goods with negative externalitiessubsidize go

18、ods with positive externalitiesEffects of Externalities:SummaryEXTERNALITIES17Case Study:Technology Spillover A potentially important type of positive externality is called a technology spillover-the impact of one firms research and production efforts on other firms access to technological advance.I

19、n this case,the government can internalize the externality by subsidizing the effort of R&D.Technological progress is the key to why living standards rise over time.But different markets have different technology spillovers,and the size of technology spillovers is difficult to measure.EXTERNALITIES1

20、8Discuss:Who should be paid?Silvia lives near a airport.One day,she was awaked by a plane.She thought she should be paid for this.Should she be paid?Should she be paid for neighbors barking dog?If everyone who lives near the airport request payment for the noise,it will be a huge cost for the airpor

21、t.Who will bear the cost?Is it possible that every externalities be paid?EXTERNALITIES19Adjudication and Property RightsTo solve the problems with externalities,clearly defined property rights is required.AdjudicationA process for deciding who has which rightsClarifies property rightsIn some cases,a

22、djudication is difficult,because the real world is complicated.Technology sometimes forces rapid changes,and new rules must be formed if negative externalities rapidly multiply.Private Solutions to ExternalitiesTypes of private solutions:Moral codes and social sanctions,e.g.,The Golden Rule:“Do unto

23、 others as you would have them do unto you.”Charities,e.g.,Greenpeace InternationalIntegrating different types of businessesNegotiation on contracts between market participants and the affected bystandersEXTERNALITIES20Integrating of BusinessesIntegrating different firms could internalize the extern

24、ality.Integration makes the firm bear the external costs or gain the external benefits,consequently make the firms consider all costs and benefits.If the businesses could be integrated with no coat,the market outcome will became efficient.The problem with this solve is,not all industries can be inte

25、grated.EXTERNALITIES21Negotiation:The Coase TheoremThe Coase theorem:If private parties can bargain over the allocation of resources at no cost,they can solve the externalities problem and allocate resources efficiently on their own.Clearly defined property rights is the necessary condition of Coase

26、 Theorem,but the initial distribution of rights doesnt matter.EXTERNALITIES22EXTERNALITIES23The Coase Theorem:An ExampleDick owns a dog named Spot.Negative externality:Spots barking disturbs Jane,Dicks neighbor.The socially efficient outcome maximizes Dicks+Janes well-being.If Dick values having Spo

27、t more than Jane values peace&quiet,the dog should stay.Coase theorem:The private market will reach the efficient outcome on its own See Spot bark.EXTERNALITIES24The Coase Theorem:An ExampleCASE 1:Dick has the right to keep Spot.Benefit to Dick of having Spot=$500Cost to Jane of Spots barking=$800So

28、cially efficient outcome:Spot goes bye-bye.Private outcome:Jane pays Dick$600 to get rid of Spot,both Jane and Dick are better off.Private outcome=efficient outcome.EXTERNALITIES25The Coase Theorem:An ExampleCASE 2:Dick has the right to keep Spot.Benefit to Dick of having Spot=$1000Cost to Jane of S

29、pots barking=$800Socially efficient outcome:See Spot stay.Private outcome:Jane not willing to pay more than$800,Dick not willing to accept less than$1000,so Spot stays.Private outcome=efficient outcome.EXTERNALITIES26The Coase Theorem:An ExampleCASE 3:Jane has the legal right to peace&quiet.Benefit

30、to Dick of having Spot=$800Cost to Jane of Spots barking=$500Socially efficient outcome:Dick keeps Spot.Private outcome:Dick pays Jane$600 to put up with Spots barking.Private outcome=efficient outcome.The private market achieves the efficient outcome The private market achieves the efficient outcom

31、e regardless of the initial distribution of rights.regardless of the initial distribution of rights.There is a vacant field between Smith and Johns house.They want to plant some flowers in the field.Smith want to plant rose,as rose could bring him$800 value,which is more than daisys$200.But John wan

32、t to plant daisy as its value is$600 for him and roses is$400.A.Describe a Coase-like private solution.B.Can you think of any reasons why this solution might not work in the real world?A C T I V E L E A R N I N G A C T I V E L E A R N I N G 3 3 Applying Coase27EXTERNALITIES28Why Private Solutions Do

33、 Not Always Work1.Transaction costs:The costs parties incur in the process of agreeing to and following through on a bargain.These costs may make it impossible to reach a mutually beneficial agreement.2.Coordination problems:If#of parties is very large,coordinating them may be costly,difficult,or im

34、possible.EXTERNALITIES29Why Private Solutions Do Not Always Work3.Stubbornness:Even if a beneficial agreement is possible,each party may hold out for a bigger share of the benefit.4.Adjudication problems:In some cases,adjudication is difficult or impossible.The property rights are not clear all the

35、time.Public Policies Toward ExternalitiesTwo approaches:Command-and-control policies regulate behavior directly.Market-based policies provide incentives so that private decision-makers will choose to solve the problem on their own.Two examples:corrective taxes and subsidiestradable pollution permits

36、EXTERNALITIES30EXTERNALITIES31RegulationThe government can remedy an externality by making certain behaviors either required or forbidden.Examples:limits on quantity of pollution emittedrequirements that firms adopt a particular technology to reduce emissionsThe way to regulation is legislation.The

37、essence of legislation clarifies property rights.EXTERNALITIES32Problems with RegulationRegulation creates new rules.New rules always raises the question of fairness and.Despite the stated goals,it would be impossible to prohibit all polluting activity.Regulation cant minimize the cost of achieving

38、objectivesThe firm with lowest cost to control pollution may not do that mostly.EXTERNALITIES33Corrective Taxes&SubsidiesCorrective tax:a tax designed to induce private decision-makers to take account of the social costs that arise from a negative externalityAlso called Pigouvian taxes after Arthur

39、Pigou(1877-1959).The ideal corrective tax=external costFor activities with positive externalities,ideal corrective subsidy=external benefitEXTERNALITIES34Corrective Taxes&SubsidiesOther taxes and subsidies distort incentives and move economy away from the social optimum.Corrective taxes&subsidies al

40、ign private incentives with societys interestsmake private decision-makers take into account the external costs and benefits of their actionsmove economy toward a more efficient allocation of resources.EXTERNALITIES35Corrective Taxes vs.Regulations:An ExampleSuppose that two factories-a paper mill a

41、nd a steel mill-are each emitting 40 tons of sulfur dioxide into the environment per year.The EPA decides that it wants to reduce the amount of pollution.It considers two solutions:-Regulation:The EPA could tell each factory to reduce its pollution to 30 tons of glop per year.-Corrective tax:The EPA

42、 could levy a tax on each factory of$50,00 for each ton of glop it emits.Which solution do you think is better?Acme and US Electric run coal-burning power plants.Each emits 40 tons of sulfur dioxide per month,total emissions=80 tons/month.Goal:Reduce SO2 emissions 25%,to 60 tons/monthCost of reducin

43、g emissions:$100/ton for Acme,$200/ton for USEPolicy option 1:RegulationEvery firm must cut its emissions 25%(10 tons).Your task:Compute the cost to each firm and total cost of achieving goal using this policy.A C T I V E L E A R N I N G A C T I V E L E A R N I N G 2 2 A.A.Regulating lower SO2 emiss

44、ions36Each firm must reduce emissions by 10 tons.Cost of reducing emissions:$100/ton for Acme,$200/ton for USE.Compute cost of achieving goal with this policy:Cost to Acme:(10 tons)x($100/ton)=$1000Cost to USE:(10 tons)x($200/ton)=$2000Total cost of achieving goal=$3000A C T I V E L E A R N I N G A

45、C T I V E L E A R N I N G 2 2 A.A.Answers37Initially,Acme and USE each emit 40 tons SO2/month.Goal:reduce SO2 emissions to 60 tons/month total.Policy option 2:Corrective Taxes Tax 100 on every ton of emission.Each firm may select from two options:Reduce emissions,and be free from taxGo on emits,and

46、pay the taxYour task:Tell who will choose which option.If the two firm chose to emit 60 tons/month in all,compute the cost of achieving goal.A C T I V E L E A R N I N G A C T I V E L E A R N I N G 2 2 Continued ContinuedB.B.Tax on SO2 emissions38Policy:Tax 100 per tonCost of reducing emissions:$100/

47、ton for Acme,$200/ton for USE.Acme will reduce pollution,and USE will go on emitCost of achieving goal:Acme:(20 tons)x($100/ton)+$2000=$4000Acme:$4000=$4000Tax:$2000+$4000=$6000 Total cost of achieving goal=$2000A C T I V E L E A R N I N G A C T I V E L E A R N I N G 2 2 B.B.Answers39EXTERNALITIES40

48、Corrective Taxes vs.RegulationsDifferent firms have different costs of pollution abatement.If firms with the lowest abatement costs reduce pollution the most,it is said to be efficient.A pollution tax is efficient:Firms with low abatement costs will reduce pollution to reduce their tax burden.Firms

49、with high abatement costs prefer to pay the tax.In contrast,a regulation requiring all firms to reduce pollution by a specific amount not efficient.EXTERNALITIES41Corrective Taxes vs.RegulationsCorrective taxes are better for the environment:The corrective tax gives firms incentive to continue reduc

50、ing pollution as long as the cost of doing so is less than the tax.If a cleaner technology becomes available to reduce the marginal cost to control pollution,the tax gives firms an incentive to adopt it.In contrast,firms have no incentive for further reduction beyond the level specified in a regulat