第18章外部性与公共物品
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Chapter 18
Externalities and Public Goods
Topics to be Discussed
Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources
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.
Enforced by monetary and criminal penalties
Increases the cost of production and the threshold price to enter the industry
Chapter 1
Slide 13
Standards and Fees
Dollars per unit of Emissions
MSC
Standard
Fee
3
Chapter 1
E* 12
MCA
Level of Emissions
Slide 14
Ways of Correcting Market Failure
Options for Reducing Emissions to E*
3) Profit maximizing output chosen
MSC
6
Why is this more efficient than zero emissions?
At Eo the marginal cost of abating emissions
is greater than the
marginal social cost.
Chapter 1
Slide 19
The Case for Standards
Fee per Unit of 16 Emissions
14 12 10
8 6 4 2 0 Chapter 1
Marginal Social Cost
E
A D
C
Based on incomplete information fee is $7
(12.5% reduction).
Emission increases to 11.
ABC is the increase in social cost less the decrease in abatement
cost.
B
Based on incomplete
information standard is 9
3 2.50
2
1
Firm 2’s Reduced Abatement Costs
Firm 1’s Increased Abatement Costs
Level of
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Emissions
Chapter 1
Slide 18
Ways of Correcting Market Failure
MC
Is research and development discouraged by positive externalities?
Chapter 1
q1 q*
Repair Level
Slide 10
Ways of Correcting Market Failure
Assumption: The market failure is pollution
MECI
D
Industry output
External Cost
Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.
is illustrated. Not efficient because
MCA2 < MCA1.
If a fee of $3 was imposed Firm 1 emissions would fall by 6 to 8. Firm 2 emissions
would fall by 8 to 6. MCA1 = MCA2: efficient solution.
Positive
Action by one party benefits another party
Chapter 1
Slide 4
External Cost
Scenario
Steel plant dumping waste in a river The entire steel market effluent can be
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.
Marginal Social Cost (MSC) is MC plus MEC.
Chapter 1
Slide 6
External Costs
Price
When there are negative externalities, the marginal social cost MSC is higher
Chapter 1
Slide 11
The Efficient Level of Emissions
Dollars per unit of Emissions
Assume: 1) Competitive market 2) Output and emissions decisions are independent
4
At E1 the marginal social cost is greater
than the marginal benefit.
The efficient level of
2
emissions is 12 (E*) where
MCA = MSC.
MCA
E0
E*
E1
0 2 4 6 8 10 12 14 16 18 20 22 24 26
MSCI
P1 q* q1
The industry competitive output is Q1 while the efficient
level is Q*.
P*
P1
MEC
Firm output
Q* Q1
S = MCI
Aggregate social cost of
negative externality
Chapter 1
Level of Emissions
Slide 12
Ways of Correcting Market Failure
Options for Reducing Emissions to E*
Emission Standard
Set a legal limit on emissions at E* (12)
Fixed-proportion production technology
Must reduce output to reduce emissions
Use an output tax to reduce output
Input substitution possible by altering technology
reduced by lowering output (fixed proportions production function)
Chapter 1
Slide 5
External Cost
Scenario
Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production.
Assumptions Policymakers have asymmetric information Administrative costs require the same fee or standard for all firms
Chapter 1
Slide 17
The Case for Fees
Chapter 1
Slide 2
Topics to be Discussed
Public Goods Private Preferences for Public Goods
Chapter 1
Slide 3
Externalities
Negative
Action by one party imposes a cost on another party
(12.5% decrease).
ADE < ABC
Marginal Cost of Abatement
2 4 6 8 10 12 14 16 Level of Emissions Slide 20
Ways of Correcting Market Failure
Summary: Fees vs. Standards
Chapter 1
Slide 9
External Benefits
Value MSB
D P1 P*
MEB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
Chapter 1
Slide 8
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.
Emissions Fee Charge levied on each unit of emission
Chapter 1
Slide 15
Standards and Fees
Dollars per unit of Emissions
MSC
Fee
3
Cost is less than the fee if emissions were
Fee per Unit of
Emissions MCA2
6
The cost minimizing solution
fowrofuirlmd b1eaannda8bfaotremfi5remnt2oafn6d
MCA1= MCA2 = $3.
4 3.75
MCA1
The impact of a standard of abatement of 7 for both firms
than the marginal cost.
The differences is the marginal external
cost MEC.
MSC
Price
MCBiblioteka The profit maximizing firm produces at q1 while the efficient output level is q*.
Standards are preferred when MSC is steep and MCA is flat.
not reduced.
Chapter 1
Total Fee
Total
of AbatementE* Abatement Cost
12
MCA
Level of Emissions
Slide 16
Ways of Correcting Market Failure
Standards Versus Fees
Externalities and Public Goods
Topics to be Discussed
Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources
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.
Enforced by monetary and criminal penalties
Increases the cost of production and the threshold price to enter the industry
Chapter 1
Slide 13
Standards and Fees
Dollars per unit of Emissions
MSC
Standard
Fee
3
Chapter 1
E* 12
MCA
Level of Emissions
Slide 14
Ways of Correcting Market Failure
Options for Reducing Emissions to E*
3) Profit maximizing output chosen
MSC
6
Why is this more efficient than zero emissions?
At Eo the marginal cost of abating emissions
is greater than the
marginal social cost.
Chapter 1
Slide 19
The Case for Standards
Fee per Unit of 16 Emissions
14 12 10
8 6 4 2 0 Chapter 1
Marginal Social Cost
E
A D
C
Based on incomplete information fee is $7
(12.5% reduction).
Emission increases to 11.
ABC is the increase in social cost less the decrease in abatement
cost.
B
Based on incomplete
information standard is 9
3 2.50
2
1
Firm 2’s Reduced Abatement Costs
Firm 1’s Increased Abatement Costs
Level of
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Emissions
Chapter 1
Slide 18
Ways of Correcting Market Failure
MC
Is research and development discouraged by positive externalities?
Chapter 1
q1 q*
Repair Level
Slide 10
Ways of Correcting Market Failure
Assumption: The market failure is pollution
MECI
D
Industry output
External Cost
Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.
is illustrated. Not efficient because
MCA2 < MCA1.
If a fee of $3 was imposed Firm 1 emissions would fall by 6 to 8. Firm 2 emissions
would fall by 8 to 6. MCA1 = MCA2: efficient solution.
Positive
Action by one party benefits another party
Chapter 1
Slide 4
External Cost
Scenario
Steel plant dumping waste in a river The entire steel market effluent can be
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.
Marginal Social Cost (MSC) is MC plus MEC.
Chapter 1
Slide 6
External Costs
Price
When there are negative externalities, the marginal social cost MSC is higher
Chapter 1
Slide 11
The Efficient Level of Emissions
Dollars per unit of Emissions
Assume: 1) Competitive market 2) Output and emissions decisions are independent
4
At E1 the marginal social cost is greater
than the marginal benefit.
The efficient level of
2
emissions is 12 (E*) where
MCA = MSC.
MCA
E0
E*
E1
0 2 4 6 8 10 12 14 16 18 20 22 24 26
MSCI
P1 q* q1
The industry competitive output is Q1 while the efficient
level is Q*.
P*
P1
MEC
Firm output
Q* Q1
S = MCI
Aggregate social cost of
negative externality
Chapter 1
Level of Emissions
Slide 12
Ways of Correcting Market Failure
Options for Reducing Emissions to E*
Emission Standard
Set a legal limit on emissions at E* (12)
Fixed-proportion production technology
Must reduce output to reduce emissions
Use an output tax to reduce output
Input substitution possible by altering technology
reduced by lowering output (fixed proportions production function)
Chapter 1
Slide 5
External Cost
Scenario
Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production.
Assumptions Policymakers have asymmetric information Administrative costs require the same fee or standard for all firms
Chapter 1
Slide 17
The Case for Fees
Chapter 1
Slide 2
Topics to be Discussed
Public Goods Private Preferences for Public Goods
Chapter 1
Slide 3
Externalities
Negative
Action by one party imposes a cost on another party
(12.5% decrease).
ADE < ABC
Marginal Cost of Abatement
2 4 6 8 10 12 14 16 Level of Emissions Slide 20
Ways of Correcting Market Failure
Summary: Fees vs. Standards
Chapter 1
Slide 9
External Benefits
Value MSB
D P1 P*
MEB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
Chapter 1
Slide 8
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.
Emissions Fee Charge levied on each unit of emission
Chapter 1
Slide 15
Standards and Fees
Dollars per unit of Emissions
MSC
Fee
3
Cost is less than the fee if emissions were
Fee per Unit of
Emissions MCA2
6
The cost minimizing solution
fowrofuirlmd b1eaannda8bfaotremfi5remnt2oafn6d
MCA1= MCA2 = $3.
4 3.75
MCA1
The impact of a standard of abatement of 7 for both firms
than the marginal cost.
The differences is the marginal external
cost MEC.
MSC
Price
MCBiblioteka The profit maximizing firm produces at q1 while the efficient output level is q*.
Standards are preferred when MSC is steep and MCA is flat.
not reduced.
Chapter 1
Total Fee
Total
of AbatementE* Abatement Cost
12
MCA
Level of Emissions
Slide 16
Ways of Correcting Market Failure
Standards Versus Fees