外部性和公共产品理论_英文版

Scenario

Steel plant dumping waste in a river The entire steel market effluent can be reduced by lowering output (fixed proportions production function)
MCA1 MCA2
The impact of a standard of abatement of 7 for both firms is illustrated. Not efficient because MCA2 < MCA1.
1
2
3
4
5
6
7
8
9
10
11
12
13
Level of 14 Emissions
Slide 16
§2.3 Standards Versus Fees

Assumptions

Policymakers have asymmetric information Administrative costs require the same fee or standard for all firms
Chapter 1Chapter 18
Slide 2
Topics to be Discussed

Public Goods Private Preferences for Public Goods
Chapter 1Chapter 18
Slide 3
§1 Externalities

Negative
MSC
6
At Eo the marginal cost of abating emissions is greater than the marginal social cost.
4
At E1 the marginal social cost is greater than the marginal benefit. The efficient level of emissions is 12 (E*) where MCA = MSC.
Chapter 1Chapter 18
Slide 18
Ways of Correcting Market Failure

Advantages of Fees

When equal standards must be used, fees achieve the same emission abatement at lower cost. Fees create an incentive to install equipment that would reduce emissions further.

Action by one party imposes a cost on another party

Positive

Action by one party benefits another party
Chapter 1Chapter 18
Slide 4
§1.1 Negative Externalities
Chapter 1Chapter 18
Slide 8
§1.2 Positive Externalities

Positive Externalities and Inefficiency

Externalities can also result in too little production, as can be shown in an example of home repair and landscaping.
8 9 10
12
14
16
Level of Emissions Slide 20
Chapter 1Chapter 18
Ways of Correcting Market Failure

Summary: Fees vs. Standards

Standards are preferred when MSC is steep and MCA is flat. Standards (incomplete information) yield more certainty on emission levels and less certainty on the cost of abatement.
MSC
Fee
Cost is less than the fee if emissions were not reduced.
3
Total Fee of Abatement E*
Total Abatement Cost
MCA
12
Chapter 1Chapter 18
Level of Emissions

Chapter 1Chapter 18
Slide 17
The Case for Fees
Fee per Unit of Emissions 6 5 4 3.75 3 2.50 2 1 0
Firm 2’s Reduced Abatement Costs Firm 1’s Increased Abatement Costs
Slide 13


Chapter 1Chapter 18
Standards and Fees
Dollars per unit of Emissions
MSC
Standard
Fee
3
MCA E* 12
Chapter 1Chapter 18
Level of Emissions
Slide 14
§2.2 Emissions Fee

Chapter 1Chapter 18
Slide 6
External Costs
Price
When there are negative externalities, the marginal social cost MSC is higher than the marginal cost. The differences is the marginal external cost MEC. The profit maximizing firm produces at q1 while the efficient output level is q*.
12
10 8 7 6 4 2 0 2 4 6
E
ABC is the increase in social cost less the decrease in abatement cost.
A
D
B
Based on incomplete information standard is 9 (12.5% decrease). ADE < ABC Marginal Cost of Abatement

Chapter 1Chapter 18
Slide 19
The Case for Standards
Fee per Unit of 16 Emissions 14
C
Marginal Social Cost
Based on incomplete information fee is $7 (12.5% reduction). Emission increases to 11.

Chapter 1Chapter 18
Slide 11
The Efficient Level of Emissions
Dollars per unit of Emissions
Assume: 1) Competitive market 2) Output and emissions decisions are independent 3) Profit maximizing output chosen
Chapter 1Chapter 18
Slide 9
External Benefits
Value MSB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits MSB are higher than marginal benefits D. A self-interested home owner invests q1 in repairs. The efficient level of repairs q* is higher. The higher price P1 discourages repair.
MSC
MC
Price
MSCI S = MCI
The industry competitive output is Q1 while the efficient level is Q*.
P* P1 P1
Aggregate social cost of negative externality
MECI
MEC D q* q1
Externalities and Public Goods
Topics to be Discussed

Externalities Ways of Correcting Market Failure Externalities and Property Rights

Common Property Resources
D P1 P* MEB
MC
Is research and development discouraged by positive externalities?
q1 Chapter 1Chapter 18
q*
Repair Level
Slide 10
§2 Ways of Correcting Market Failure
Chapter 1Chapter 18
Slide 5
External Cost

Scenario

Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production. Marginal Social Cost (MSC) is MC plus MEC.
2
MCA
E0 0 2 4 6 8 10 Chapter 1Chapter 18 E* 12 14 16 E1 18 20 22 24 26 Slide 12
Level of Emissions
Ways of Correcting Market Failure
§2.1 Emission Standard

Chapter 1Chapter 18

Options for Reducing Emissions to E*

Emissions Fee

Charge levied on each unit of emission
Chapter 1Chapter 18
Slide 15
Standards and Fees
Dollars per unit of Emissions

Assumption: The market failure is pollution

Fixed-proportion production technology

Must reduce output to reduce emissions Use an output tax to reduce output
Firm output

Q* Q1
Industry output
External Cost

Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.

Options for Reducing Emissions to E*

Emission Standard

Set a legal limit on emissions at E* (12) Enforced by monetary and criminal penalties Increases the cost of production and the threshold price to enter the industry