1. ECO 481: Public Choice Theory
Coercive Redistribution
&
Environmental Goods
Dr. Dennis Foster

2. Why is their caring? We expect wealthier to pursue rent-seeking.
I. Coercive Redistribution
Why is their caring?
We expect wealthier to pursue rent-seeking.
We have a strong altruistic streak.
Especially for those close to us.
We give a lot to civic organizations.
Are we just bribing the poor? [Does it even work?]

3. Support for Welfare From bureaucrats.
I. Coercive Redistribution
Support for Welfare
From bureaucrats.
From private suppliers of transfer goods.
From “intellectuals.”
From politicians – the New Deal & Great Society
Complicated programs that garner votes.

4. Is there a solution? Economic growth!
I. Coercive Redistribution
Is there a solution?
Economic growth!
Capitalists denigrated “An ideology of equality and entitlement borne of desperate conditions has now taken such hold that even able supporters of effective capitalistic institutions are placed on the defensive.”
Keep a low profile!

5. Equality 53% get some direct benefits (mostly feds).
I. Coercive Redistribution
Equality
53% get some direct benefits (mostly feds).
Doesn’t include “public goods!”
Leaky bucket of federal redistribution.
Est. 66% - 75% doesn’t go to beneficiary.
Exp.  $7800 each; > claimed amt. needed.
It’s easy being “politically generous.” So, why doesn’t that “cure” poverty.

6. Politics & Redistribution
I. Coercive Redistribution
Politics & Redistribution
Must form coalitions.
Results in a lot of unintended indirect transfers.
Includes monetary & fiscal policies.
Distribution can go sideways or up!
“Whenever vast new government programs come into being the consequences are apt to be widespread, consequential, and somewhat unpredictable.”

7. Politics & Redistribution
I. Coercive Redistribution
Politics & Redistribution
Generally from poorly organized to well organized.
It’s not about the poor!
Does “social justice” mean anything other than, “More for me and less for you?”
We bias results against what a market would do.
“State redistribution is not morally superior to that of markets or private charity.”

8. The Demand for Amenities
II. Environmental Goods
The Demand for Amenities
Growth in environmental “awareness” in the U.S. in the 1980s.
A direct outgrowth of capitalism and rising living standards. --How do we make LDCs environmentally friendly???
Government actions: illusory, costly (>benefits) & worsening.

9. Optimal level of pollution
II. Environmental Goods
Optimal level of pollution
Quantity of pollution $
MCa (MB) Em
Market - overproduces.
Not on purpose!
Reaching efficiency: --Tax = 0T --Mandate = Es
Both can/are likely to be inefficient!
MCp Es $ T
Environmental problems must be understood more as failures by gov’t to specify property rights than as offshoots of private profit-seeking.

10. Inefficient Outcomes Coal & the Clean Air Act (1970, 1977, 1990)
II. Environmental Goods
Inefficient Outcomes
Coal & the Clean Air Act (1970, 1977, 1990)
Choices: scrubbers, washing, use low-SO2 coal.
Mandate on scrubbers benefits . . .
1990 introduced permit trading. Did EPA get estimated costs right? Did vested industry get it right?
Doesn’t anybody read Hayek?

11. Selling Pollution Rights Goal: Reduce Pollution by 3 Units
II. Environmental Goods
Selling Pollution Rights Goal: Reduce Pollution by 3 Units
Cost to reduce by:
Firm X
Firm Y
Firm Z
1st unit
$50
$70
$800
2nd unit
$75
$130
$1000
3rd unit
$100
$200
$2000
How? Cost? Price of permits? Issue 2 each?

12. Property Rights Coase – As long as transaction costs are low.
II. Environmental Goods
Property Rights
Coase – As long as transaction costs are low.
Not a market problem --Airspace. --Fish. --Endangered species. --Wild species.
GroupOn and solving the free rider problem.

13. Elephants & Property Rights
II. Environmental Goods
Elephants & Property Rights
Elephants in Africa 1970s million 1980s - 600,000

14. Limitations Transactions costs must be low.
II. Environmental Goods
Limitations
Transactions costs must be low.
Assignment of rights will be contentious.
What is optimal level of pollution?
It is not a scientific question!!
Who will set the tax? Who will be exempt?
Do we really want to treat symptoms rather than the source?
Information and incentive problems are well-handled by the market and are “at the heart of government mismanagement.”

15. What about global warming?
II. Environmental Goods
What about global warming?
What are we talking about?
What is the basis for the alarm?
Do the alarmists have a good track record?
Why is the debate over if conclusions are model-driven?
What is the criteria for being wrong?
What’s wrong with the McKitrick tax?

16. II. Environmental Goods

17. ECO 481: Public Choice Theory
Coercive Redistribution
&
Environmental Goods
Dr. Dennis Foster