公共政策的经济分析(英文)Chap05-Externalities课件.ppt

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1、Chapter 5-Externalities1Externality DefinedAn externality is present when the activity of one entity(person or firm)directly affects the welfare of another entity in a way that is outside the market mechanism.Negative externality:These activities impose damages on others.Positive externality:These a

2、ctivities benefits on others.2Examples of ExternalitiesNegative ExternalitiesPollutionCell phones in a movie theaterCongestion on the internetDrinking and drivingStudent cheating that changes the grade curveThe“Club”anti-theft devise for automobiles.Positive ExternalitiesResearch&developmentVaccinat

3、ionsA neighbors nice landscapeStudents asking good questions in classThe“LoJack”anti-theft devise for automobilesNot Considered ExternalitiesLand prices rising in urban area.Known as“pecuniary”externalities.3Nature of ExternalitiesArise because there is no market price attached to the activity.Can b

4、e produced by people or firms.Can be positive or negative.Public goods are special case.Positive externalitys full effects are felt by everyone in the economy.4Graphical Analysis,continuedMB=marginal benefit to steel firmMPC=marginal private cost to steel firmMD=marginal damage to fisheryMSC=MPC+MD=

5、marginal social cost6Figure 5.17Graphical Analysis,continuedFrom figure 5.1,as usual,the steel firm maximizes profits at MB=MPC.This quantity is denoted as Q1 in the figure.Social welfare is maximized at MB=MSC,which is denoted as Q*in the figure.8Figure 5.210Graphical Analysis,IntuitionIn Figure 5.

6、2,loss to steel firm of moving to Q*is shaded triangle dcg.This is the area between the MB and MPC curve going from Q1 to Q*.Fishery gains by an amount abfe.This is the area under the MD curve going from Q1 to Q*.By construction,this equals area cdhg.Difference between fisherys gain and steel firms

7、loss is the efficiency loss from producing Q1 instead of Q*.11Numerical Example,continuedThe steel firm therefore chooses Q1:The socially efficient amount is instead Q*:13Numerical Example,continuedBy moving to Q*the steel firm loses profits equal to the triangle between the MB and MPC curve from Q1

8、 to Q*.By moving to Q*the fishery reduces its damages by an amount equal to the trapezoid under the MD curve from Q1 to Q*.15Calculating gains&losses raises practical questionsWhat activities produce pollutants?With acid rain it is not known how much is associated with factory production versus natu

9、ral activities like plant decay.Which pollutants do harm?Pinpointing a pollutants effect is difficult.Some studies show very limited damage from acid rain.What is the value of the damage done?Difficult to value because pollution not bought/sold in market.Housing values may capitalize in pollutions e

10、ffect.16Coase TheoremInsight:root of the inefficiencies from externalities is the absence of property rights.The Coase Theorem states that once property rights are established and transaction costs are small,then one of the parties will bribe the other to attain the socially efficient quantity.The s

11、ocially efficient quantity is attained regardless of whom the property rights were initially assigned.18Illustration of the Coase TheoremRecall the steel firm/fishery example.If the steel firm was assigned property rights,it would initially produce Q1,which maximizes its profits.If the fishery was a

12、ssigned property rights,it would initially mandate zero production,which minimizes its damages.19Figure 5.320Coase Theorem assign property rights to steel firmConsider the effects of the steel firm reducing production in the direction of the socially efficient level,Q*.This entails a cost to the ste

13、el firm and a benefit to the fishery:The steel firm(and its customers)would lose surplus between the MB and MPC curves between Q1 and Q1-1,while the fisherys damages are reduced by the area under the MD curve between Q1 and Q1-1.Note that the marginal loss in profits is extremely small,because the s

14、teel firm was profit maximizing,while the reduction in damages to the fishery is substantial.A bribe from the fishery to the steel firm could therefore make all parties better off.21Coase Theorem assign property rights to steel firmWhen would the process of bribes(and pollution reduction)stop?When t

15、he parties no longer find it beneficial to bribe.The fishery will not offer a bribe larger than its MD for a given quantity,and the steel firm will not accept a bribe smaller than its loss in profits(MB-MPC)for a given quantity.Thus,the quantity where MD=(MB-MPC)will be where the parties stop bribin

16、g and reducing output.Rearranging,MC+MPC=MB,or MSC=MB,which is equal at Q*,the socially efficient level.22Coase Theorem assign property rights to fisheryWhen would the process of bribes now stop?Again,when the parties no longer find it beneficial to bribe.The fishery will not accept a bribe smaller

17、than its MD for a given quantity,and the steel firm will not offer a bribe larger than its gain in profits(MB-MPC)for a given quantity.Again,the quantity where MD=(MB-MPC)will be where the parties stop bribing and reducing output.This still occurs at Q*.24When is the Coase Theorem relevant or not?Lo

18、w transaction costsFew parties involvedSource of externality well definedExample:Several firms with pollutionNot relevant with high transaction costs or ill-defined externalityExample:Air pollution25Private responses,continuedMergersSocial conventions26Social ConventionsCertain social conventions ca

19、n be viewed as attempts to force people to account for the externalities they generate.Examples include conventions about not littering,not talking in a movie theatre,etc.28Public responsesTaxesSubsidiesCreating a marketRegulation29Figure 5.431TaxesThis tax clearly raises the cost to the steel firm

20、and will result in a reduction of output.Will it achieve a reduction to Q*?With the tax,t,the steel firm chooses quantity such that MB=MPC+t.When the tax is set to equal the MD evaluated at Q*,the expression becomes MB=MPC+MD(Q*).Graphically it is clear that MB(Q*)-MPC(Q*)=MD(Q*),thus the firm produ

21、ces the efficient level.32Numerical Example:Pigouvian taxesReturning to the numerical example:Recall that Q1=140 and Q*=60.33Numerical Example:Pigouvian taxesSetting t=MD(60)gives t=160.The firm now sets MB=MPC+t,which then yields Q*.34Public responsesSubsidiesCreating a marketRegulation35SubsidiesA

22、nother solutions is paying the polluter to not pollute.Assume this subsidy was again equal to the marginal damage at the socially efficient level.Steel firm would cut back production until the loss in profit was equal to the subsidy;this again occurs at Q*.Subsidy could induce new firms to enter the

23、 market,however.36Public responsesCreating a marketRegulation37Creating a marketSell producers permits to pollute.Creates market that would not have emerged.Process:Government sells permits to pollute in the quantity Z*.Firms bid for the right to own these permits,fee charged clears the market.In ef

24、fect,supply of permits is inelastic.38Figure 5.639Creating a market,continuedProcess would also work if the government initially assigned permits to firms,and then allowed firms to sell permits.Distributional consequences are different firms that are assigned permits initially now benefit.One advant

25、age over Pigouvian taxes:permit scheme reduces uncertainty over ultimate level of pollution when costs of MB,MPC,and MD are unknown.40Public responsesRegulation41RegulationEach polluter must reduce pollution by a certain amount or face legal sanctions.Inefficient when there are multiple firms with d

26、ifferent costs to pollution reduction.Efficiency does not require equal reductions in pollution emissions;rather it depends on the shapes of the MB and MPC curves.42Figure 5.743The U.S.response1970s:RegulationCongress set national air quality standards that were to be met independent of the costs of

27、 doing so.1990s:Market oriented approaches have somewhat more influence,but not dominant1990 Clean Air Act created a market to control emissions of sulfur dioxide with permits.44Graphical Analysis:Positive ExternalitiesFor simplicity,assume that a university conducts research that has spillovers to

28、a private firm.Competitive markets,firms maximize profitsNote that university only cares about its own profits,not the private firms.Private firm only cares about its profits,not the universitys.45Graphical Analysis,continuedMPB=marginal private benefit to universityMC=marginal cost to universityMEB

29、=marginal external benefit to private firmMSB=MPB+MEB=marginal social benefit46Figure 5.847Graphical Analysis,continuedFrom figure 5.8,as usual,the university maximizes profits at MPB=MC.This quantity is denoted as R1 in the figure.Social welfare is maximized at MSB=MC,which is denoted as R*in the f

30、igure.48Graphical Analysis,ImplicationsResult 1:R1R*University privately produces“too little”research,because it does not account for the benefits to the private firm.Result 2:Private firms preferred amount is where the MEB curve intersects the x-axis.Firms benefits are maximized at MEB=0.Result 3:R

31、*is not the preferred quantity for either party,but is the best compromise between university and private firm.49Graphical Analysis,IntuitionIn Figure 5.8,loss to university of moving to R*is the triangle area between the MC and MPB curve going from R1 to R*.Private firm gains by the area under the

32、MEB curve going from R1 to R*.Difference between private firms gain and universitys loss is the efficiency loss from producing R1 instead of R*.50Recap of externalitiesExternalities definitionNegative externalities graphical&numerical examplesPrivate responsesPublic responsesPositive externalities51