Chapter 10 Economics and 三 nvironment
Chapter 10 Economics and Environment
101 ENVIRONMENTAL PROBLEMS Reasons for Reluctance because of benefit. it is difficult to demand that people in developing countries should give up economic opportunities for the sake of the environment because of individual freedom, governments are reluctant to tell consumers what to buy and producers how to produce disagreement about the level of environmental damage and disagreement about the best way to limit or prevent it
10.1 ENVIRONMENTAL PROBLEMS ▪ Reasons for Reluctance ▪ because of benefit, it is difficult to demand that people in developing countries should give up economic opportunities for the sake of the environment. ▪ because of individual freedom, governments are reluctant to tell consumers what to buy and producers how to produce. ▪ disagreement about the level of environmental damage and disagreement about the best way to limit or prevent it
Environmental Debates Views about environmental lssues Intergenerational equity the goal of trying to make sure that future generations have access to resources and the natural would to at least an equal extent to that of current generations environmental capital sustainable development
Environmental Debates ▪ Views about Environmental Issues ▪ Intergenerational equity ▪ the goal of trying to make sure that future generations have access to resources and the natural would to at least an equal extent to that of current generations. ▪ environmental capital ▪ sustainable development
102 MARKET FAILURE AND EXTERNALITIES Market failure he situation that arises when the actions of some people adversely and significantly affect others in one or more ways The inability of some unregulated markets to allocate resources efficiently
10.2 MARKET FAILURE AND EXTERNALITIES ▪ Market failure ▪ the situation that arises when the actions of some people adversely and significantly affect others in one or more ways. ▪ The inability of some unregulated markets to allocate resources efficiently
三 externalities Externality something that result from the actions of a person or persons that affect others who are not parties to the original action one party undertaking an action to gain a benefit, while another party has to bear some cost associated with that action Negative externality the cost that the other people have to carry Positive externality without some form of intervention or market adjustment, the producers in each cases do not pay that cost Summarize the government can internalize the externality by taxing goods that have negative externalities and subsidizing goods that have positive externalities
Externalities ▪ Externality ▪ something that result from the actions of a person or persons, that affect others who are not parties to the original action. ▪ one party undertaking an action to gain a benefit, while another party has to bear some cost associated with that action. ▪ Negative externality ▪ the cost that the other people have to carry. ▪ Positive externality ▪ without some form of intervention or market adjustment, the producers in each cases do not pay that cost. ▪ Summarize: ▪ the government can internalize the externality by taxing goods that have negative externalities and subsidizing goods that have positive externalities
10 3 ENVIRONIMENTAL POLICIESH DEALING WITH EXTERNALITIES 1. Regulation government can remedy an externality by making certain behaviors either required or forbidden a politically, scientifically or economically optimal level of activity
10.3 ENVIRONMENTAL POLICIES: DEALING WITH EXTERNALITIES 1. Regulation ▪ government can remedy an externality by making certain behaviors either required or forbidden. ▪ a politically, scientifically or economically optimal level of activity
2 Tradeable Rights and Permits these could be sold at a fixed price to each of the producers or a more market orientated approach would be to auction them to the highest bidder this gives firms time to adjust and gives them more management freedom
2. Tradeable Rights and Permits ▪ these could be sold at a fixed price to each of the producers or a more market orientated approach would be to auction them to the highest bidder. ▪ this gives firms time to adjust and gives them more management freedom
iNcentives and Disincentives the government could persuade consumers to change their behavior and this would then send a market signal to producers to be environmentally friendly
3. Incentives and Disincentives ▪ the government could persuade consumers to change their behavior and this would then send a market signal to producers to be environmentally friendly
4 Green taxes Pigovian Tax a tax enacted to correct the effects of a negative externality Arthur Pigou, 1877-1959 Compare Regulation: not exceed 18 litres/wk Green Tax: $20 for each ton of paper
4. Green Taxes ▪ Pigovian Tax ▪ a tax enacted to correct the effects of a negative externality. ▪ Arthur Pigou, 1877-1959 ▪ Compare: ▪ Regulation: not exceed 18 litres/wk ▪ Green Tax: $20 for each ton of paper
Preference 1. Tax is just as effective as a regulation in reducing the overall level of pollution. The higher the tax, the larger the reduction in pollution Tax reduces pollution more efficiently. It places a price on the right to pollute, which allocates pollution to those factories that face the highest cost of reducing it 3. Tax is better for the environment. Under the command-and control policy of regulation, the factories have no reason to reduce emission further. By contrast, tax gives the factories an incentive to develop cleaner technologies, because it would reduce the amount of tax the factory has to pay 4. Conclusion: Unlike other taxes, e.g. income tax, distort incentives and move the allocation of resources away from the social optimum Tax raises revenue for the government, also enhance economic efficiency, the bystanders who are affected are also be cared
Preference 1. Tax is just as effective as a regulation in reducing the overall level of pollution. The higher the tax, the larger the reduction in pollution. 2. Tax reduces pollution more efficiently. It places a price on the right to pollute, which allocates pollution to those factories that face the highest cost of reducing it. 3. Tax is better for the environment. Under the command-andcontrol policy of regulation, the factories have no reason to reduce emission further. By contrast, tax gives the factories an incentive to develop cleaner technologies, because it would reduce the amount of tax the factory has to pay. 4. Conclusion: Unlike other taxes, e.g. income tax, distort incentives and move the allocation of resources away from the social optimum. Tax raises revenue for the government, also enhance economic efficiency, the bystanders who are affected are also be cared
