1、Chapter 18Externalities and Public GoodsChapter 1Slide 2Topics to be DiscussednExternalitiesnWays of Correcting Market FailurenExternalities and Property RightsnCommon Property ResourcesChapter 1Slide 3Topics to be DiscussednPublic GoodsnPrivate Preferences for Public GoodsChapter 1Slide 4Externalit
2、iesnNegativelAction by one party imposes a cost on another partynPositivelAction by one party benefits another partyChapter 1Slide 5External CostnScenariolSteel plant dumping waste in a riverlThe entire steel market effluent can be reduced by lowering output(fixed proportions production function)Cha
3、pter 1Slide 6External CostnScenariolMarginal External Cost(MEC)is the cost imposed on fishermen downstream for each level of production.lMarginal Social Cost(MSC)is MC plus MEC.MCS=MCIDP1Aggregate social cost ofnegativeexternalityP1q1Q1MSCMSCIWhen there are negativeexternalities,the marginalsocial c
4、ost MSC is higherthan the marginal cost.External CostsFirm outputPriceIndustry outputPriceMECMECIThe differences isthe marginal externalcost MEC.q*P*Q*The industry competitiveoutput is Q1 while the efficientlevel is Q*.The profit maximizing firmproduces at q1 while the efficient output level is q*.C
5、hapter 1Slide 8External CostnNegative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.Chapter 1Slide 9ExternalitiesnPositive Externalities and InefficiencylExternalities can also result in too little production,as can be shown in an
6、 example of home repair and landscaping.Chapter 1Slide 10MCP1External BenefitsRepair LevelValueDIs research and development discouraged by positiveexternalities?q1MSBMEBWhen there are positiveexternalities(the benefitsof repairs to neighbors),marginal social benefitsMSB are higher thanmarginal benef
7、its D.q*P*A self-interested home ownerinvests q1 in repairs.Theefficient level of repairsq*is higher.The higher priceP1 discourages repair.Chapter 1Slide 11Ways of Correcting Market FailurenAssumption:The market failure is pollutionlFixed-proportion production technologyuMust reduce output to reduce
8、 emissionsuUse an output tax to reduce outputlInput substitution possible by altering technologyChapter 1Slide 12The Efficient Level of EmissionsLevel of Emissions246Dollarsper unitof Emissions02468101214161820222426MSCMCAE*The efficient level ofemissions is 12(E*)where MCA=MSC.Assume:1)Competitive
9、market2)Output and emissions decisions are independent3)Profit maximizing output chosenAt Eo the marginalcost of abating emissionsis greater than themarginal social cost.E0At E1 the marginalsocial cost is greaterthan the marginal benefit.E1Why is this more efficientthan zero emissions?Chapter 1Slide
10、 13Ways of Correcting Market FailurenOptions for Reducing Emissions to E*lEmission StandarduSet a legal limit on emissions at E*(12)uEnforced by monetary and criminal penaltiesuIncreases the cost of production and the threshold price to enter the industryChapter 1Slide 14Standards and FeesLevel of E
11、missionsDollarsper unitof EmissionsMSCMCA312E*StandardFeeChapter 1Slide 15nOptions for Reducing Emissions to E*lEmissions FeeuCharge levied on each unit of emissionWays of Correcting Market FailureChapter 1Slide 16TotalAbatement CostCost is less than thefee if emissions were not reduced.Total Feeof
12、AbatementStandards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*FeeChapter 1Slide 17nStandards Versus FeeslAssumptionsuPolicymakers have asymmetric informationuAdministrative costs require the same fee or standard for all firmsWays of Correcting Market FailureChapter 1Slide 18Firm
13、 2s ReducedAbatementCostsFirm 1s IncreasedAbatement CostsMCA1MCA2The Case for FeesLevel of Emissions246Fee perUnit ofEmissions01234567891011121313514The cost minimizing solutionwould be an abatement of 6for firm 1 and 8 for firm 2 andMCA1=MCA2=$3.3.752.50The impact of a standard ofabatement of 7 for
14、 both firmsis illustrated.Not efficient becauseMCA2 MCA1.If a fee of$3 was imposedFirm 1 emissions would fallby 6 to 8.Firm 2 emissionswould fall by 8 to 6.MCA1=MCA2:efficient solution.Chapter 1Slide 19nAdvantages of FeeslWhen equal standards must be used,fees achieve the same emission abatement at
15、lower cost.lFees create an incentive to install equipment that would reduce emissions further.Ways of Correcting Market FailureChapter 1Slide 20ABC is the increasein social cost less thedecrease in abatementcost.MarginalSocialCostMarginal Costof AbatementThe Case for StandardsLevel of EmissionsFee p
16、erUnit ofEmissions0246810121416246810121416EBased on incompleteinformation standard is 9(12.5%decrease).ADE m*.Chapter 1Slide 33Refundable DepositsAmount of Glass$DPrice falls to P and the amount of recycled glass increases to M*.SvSrSThe supply of glass is the sum of the supplyof virgin glass(Sr)an
17、d the supply of recycledglass(Sr).M1PWithout refunds the price of glass is P and Sr is M1.SrSPM*With refunds Sr increasesto Sr and S increases to S.Chapter 1Slide 34Externalities and Property RightsnProperty RightslLegal rules describing what people or firms may do with their propertylFor exampleuIf
18、 residents downstream owned the river(clean water)they control upstream emissions.Chapter 1Slide 35nBargaining and Economic EfficiencylEconomic efficiency can be achieved without government intervention when the externality affects relatively few parties and when property rights are well specified.E
19、xternalities and Property RightsChapter 1Slide 36Profits Under AlternativeEmissions Choices(Daily)No filter,not treatment plant500100600Filter,no treatment plant300500800No filter,treatment plant500200700Filter,treatment plant300300600FactorysFishermensTotalProfitProfitProfitChapter 1Slide 37nAssump
20、tionslFactory pays for the filterlFishermen pay for the treatment plantnEfficient SolutionlBuy the filter and do not build the plantExternalities and Property RightsChapter 1Slide 38Bargaining with Alternative Property RightsNo CooperationProfit of factory$500$300Profit of fishermen$200$500Cooperati
21、onProfit of factory$550$300Profit of fishermen$250$500Right to Dump Right to Clean WaterChapter 1Slide 39nConclusion:Coase TheoremlWhen parties can bargain without cost and to their mutual advantage,the resulting outcome will be efficient,regardless of how the property rights are specified.Externali
22、ties and Property RightsChapter 1Slide 40nCostly Bargaining-The Role of Strategic BehaviorlBargaining requires clearly defined rules and property rights.Externalities and Property RightsChapter 1Slide 41nA Legal Solution-Suing for DamageslFishermen have the right to clean waterlFactory has two optio
23、nsuNo filter,pay damageslProfit=$100($500-$400)uFilter,no damageslProfit=$300($500-$200)Externalities and Property RightsChapter 1Slide 42nA Legal Solution-Suing for DamageslFactory has the right to emit effluentlFishermen have three optionsuPut in treatment plantlProfit=$200uFilter and pay damagesl
24、Profit=$300($500-$200)uNo plant,no filterlProfit=$100Externalities and Property RightsChapter 1Slide 43nConclusionlA suit for damages results in an efficient outcome.nQuestionlHow would imperfect information impact the outcome?Externalities and Property RightsChapter 1Slide 44The Coase Theorem at Wo
25、rknNegotiating an Efficient Solutionl1987-New York garbage spill(200 tons)littered the New Jersey beachesuThe potential cost of litigation resulted in a solution that was mutually beneficial to both parties.Chapter 1Slide 45Common Property ResourcesnCommon Property ResourcelEveryone has free access.
26、lLikely to be overutilizedlExamplesuAir and wateruFish and animal populationsuMineralsChapter 1Slide 46Common Property ResourcesFish per MonthBenefits,Costs($perfish)DemandHowever,private costsunderestimate true cost.The efficient level of fish/month is F*whereMSC=MB(D)Marginal Social CostF*Private
27、CostFCWithout control the numberof fish/month is FC where PC=MB.Chapter 1Slide 47Common Property ResourcesnSolutionlPrivate ownershipnQuestionlWhen would private ownership be impractical?Chapter 1Slide 48Crawfish Fishing in LousiananFinding the Efficient Crawfish CatchlF=crawfish catch in millions o
28、f pounds/yrlC=cost in dollars/poundChapter 1Slide 49Crawfish Fishing in LousiananDemandlC=0.401=0.0064FnMSClC=-5.645+0.6509FnPClC=-0.357+0.0573FChapter 1Slide 50Crawfish Fishing in LousiananEfficient Catchl9.2 million poundslD=MSCChapter 1Slide 51Crawfish Catch(millions of pounds)CCost(dollars/pound
29、)DemandMarginal Social CostPrivate CostCrawfish as a CommonProperty Resource11.92.109.20.325Chapter 1Slide 52Public GoodsnQuestionlWhen should government replace firms as the producer of goods and services?Chapter 1Slide 53Public GoodsnPublic Good CharacteristicslNonrivaluFor any given level of prod
30、uction the marginal cost of providing it to an additional consumer is zero.lNonexclusiveuPeople cannot be excluded from consuming the good.Chapter 1Slide 54Public GoodsnNot all government produced goods are public goodslSome are rival and nonexclusiveuEducationuParksChapter 1Slide 55D1D2DWhen a good
31、 is nonrival,the social marginalbenefit of consumption(D),is determined byvertically summing the individual demand curves for the good.Efficient Public Good ProvisionOutput0Benefits(dollars)12345678109$4.00$5.50$7.00Marginal Cost$1.50Efficient output occurswhere MC=MB at 2units of output.MB is$1.50+
32、$4.00 or$5.50.Chapter 1Slide 56Public GoodsnPublic Goods and Market FailurelHow much national defense did you consume last week?Chapter 1Slide 57Public GoodsnFree RiderslThere is no way to provide some goods and services without benefiting everyone.lHouseholds do not have the incentive to pay what t
33、he item is worth to them.lFree riders understate the value of a good or service so that they can enjoy its benefit without paying for it.Chapter 1Slide 58Public GoodsnEstablishing a mosquito abatement companylHow do you measure output?lWho do you charge?lA mosquito meter?Chapter 1Slide 59The Demand
34、for Clean AirnClean Air is a public goodlNonexclusive and nonrivalnWhat is the price of clean air?Chapter 1Slide 60The Demand for Clean AirnChoosing where to livelStudy in Boston correlates housing prices with the quality of air and other characteristics of the houses and their neighborhoods.Chapter
35、 1Slide 61The Demand for Clean AirNitrogen Oxides(pphm)0Dollars1234567810920002500300050015001000Low IncomeMiddle IncomeHigh IncomeChapter 1Slide 62The Demand for Clean AirnFindingslAmount people are willing to pay for clean air increases substantially as pollution increases.lHigher income earners a
36、re willing to pay more(the gap between the demand curves widen)lNational Academy of Sciences found that a 10%reduction in auto emissions yielded a benefit of$2 billion-somewhat greater than the cost.Chapter 1Slide 63Private Preferences for Public GoodsnGovernment production of a public good is advan
37、tageous because the government can assess taxes or fees to pay for it.nDetermining how much of a public good to provide when free riders exist is difficult.Chapter 1Slide 64Determining the Levelof Educational SpendingEducational spendingper pupil$0Willingnessto pay$1200$600$1800$2400W1W2W3AWThe effi
38、cient level of educational spending is determined by summing thewillingness to pay for education for eachof three citizens.Chapter 1Slide 65Determining the Levelof Educational SpendingEducational spendingper pupil$0Willingnessto pay$1200$600$1800$2400W1W2W3AWWill majority rule yield an efficient out
39、come?W1 will vote for$600W2 and W3 will vote for$1200The median vote will always win in a majorityrule election.Chapter 1Slide 66nQuestionlWill the median voter selection always be efficient?nAnswerlIf two of the three preferred$1200 there would be overinvestment.lIf two of the three preferred$600 t
40、here would be underinvestment.Private Preferences for Public GoodsChapter 1Slide 67nMajority rule is inefficient because it weighs each citizens preference equally-the efficient outcome weighs each citizens vote by his or her strength of preference.Private Preferences for Public GoodsChapter 1Slide
41、68SummarynThere is an externality when a producer or a consumer affects the production or consumption activities of others in a manner that is not directly reflected in the market.nPollution can be corrected by emission standards,emissions fees,marketable emissions permits,or by encouraging recyclin
42、g.Chapter 1Slide 69SummarynInefficiencies due to market failure may be eliminated through private bargaining among the affected parties.nCommon property resources are not controlled by a single person and can be used without a price being paid.Chapter 1Slide 70SummarynGoods that private markets are
43、not likely to produce efficiently are either nonrival or nonexclusive.Public goods are both.nA public good is provided efficiently when the vertical sum of the individual demands for the public good is equal to the marginal cost of producing it.Chapter 1Slide 71SummarynUnder majority rule voting,the level of spending provided will be that preferred by the median voter-this need not be the efficient outcome.End of Chapter 18Externalities and Public Goodsdocin/sanshengshiyuandoc88/sanshenglu 更多精品资源请访问更多精品资源请访问
