Download presentation

Presentation is loading. Please wait.

Published byTamia Mundine Modified over 3 years ago

1
David A. Anderson Paul G. Blazer Professor Centre College

2
Pigou (1920) Tax / Subsidy = Marginal External Cost / Benefit Best for market goods with MEC/MEB known to policymakers Problems with compounding of tax + expected litigation cost + risk burden + ethical behavior

3
Coase (1960) Private bargaining achieves efficiency Most effective when transaction costs low (e.g., few affected) Strategic bargaining can deter efficiency Underused

5
Hardin (1968) Privatization leads to internalization and better care Austrian Economists, e.g., Block (1998) Difficult to privatize air, flowing water

6
Buchanan and Tullock (1962) voting outcomes can be inefficient van Mill (1996) “… majority rule is inherently irrational and unstable in its outcomes.” Walker et al. (2000) voting solutions lead to efficiency via information signaling

13
The Kentucky Division of Water and the Kentucky Department of Health Services warn swimmers to avoid portions of the upper Cumberland River, the North Fork of the Kentucky River and the Licking River because they contain high levels of fecal coliform bacteria.

15
n homes c = cost per home of a septic system e = damage from each home’s emissions With uniformly distributed pollutant, each home’s share of own damage is e/n Rational private response: purchase septic system if c < e/n Socially efficient response: purchase septic system if c < e

16
If individuals are identical and fully informed, votes among any number of individuals on the abatement of a uniformly distributed pollutant will yield efficient policy decisions.

17
Each home internalizes e/n of its own emissions damages and receives (n-1)e/n of the damage from other homes. The total damages felt by each home are thus

18
If individuals are fully informed but heterogeneous in terms of the size of the externality they create, votes among any number of individuals on the abatement of a uniformly distributed pollutant will yield efficient policy decisions.

19
Suppose there are two levels of emissions, high (e h ) and low (e l ), and that x homes emit at the high level and n-x homes emit at the low level. Homes emitting e h internalize e h /n and receive [(x-1)e h + (n-x)e l ]/n of the damage from other homes. The total damage received by each high emitter is thus

20
For low emitters the analogous equation is

21
Each resident will vote for a septic system requirement if c < ē, or equivalently, if the total cost of the requirement (nc) is less than the total emissions damages (nē).

22
If individuals are fully informed and create the same or different levels of a uniformly distributed pollutant, and if a standard amount of the damage created by each individual is completely external, a vote among affected parties will yield the efficient solution.

23
Allow ε to represent the completely external damage created by each home. The damage received by each home is thus:

24
From Proposition 2, each will internalize the average level of uniformly distributed pollution. From the last equation, each will also internalize the full per-capita external component. Thus, each will fully internalize the average level of both types of damage, and clean-up measures will receive the majority of votes if c < ē + ε.

25
If individuals are fully informed and a standard level of emissions is completely external, a vote among affected parties will yield the efficient solution.

26
This is a special case of Proposition 3 in which e = 0. The previous equation becomes and again the voting solution will be efficient.

27
$10 / glass The check is split

28
Pigou: Tax each person $9 per drink

29
Hardin: Privatize the decision by having everyone pay for their own drink

30
Pigou: Tax each person $9 per drink Hardin: Privatize the decision by having everyone pay for their own drink Coase: Each person offers others bribes of up to $1 per recipient not to buy another drink

31
Pigou: Tax each person $9 per drink Hardin: Privatize the decision by having everyone pay for their own drink Coase: Each person offers others bribes of up to $1 per recipient not to buy another drink Voting Solution: Vote on whether to have another round

Similar presentations

Presentation is loading. Please wait....

OK

Chapter 5 EXTERNALITIES

Chapter 5 EXTERNALITIES

© 2018 SlidePlayer.com Inc.

All rights reserved.

To ensure the functioning of the site, we use **cookies**. We share information about your activities on the site with our partners and Google partners: social networks and companies engaged in advertising and web analytics. For more information, see the Privacy Policy and Google Privacy & Terms.
Your consent to our cookies if you continue to use this website.

Ads by Google

Ppt on earthquake engineering File type ppt on cybercrime convention Free ppt on save environment Ppt on tunnel diode transmitter Ppt on acute coronary syndrome pathophysiology Educational backgrounds for ppt on social media Ppt on satellite orbital slots Ppt on 3d tv technology Download free ppt on job satisfaction Ppt on product advertising slogan