【课件】外部性与公共物品

1、Chapter 18Externalities and Public GoodsTopics to be DiscussedExternalitiesWays of Correcting Market FailureExternalities and Property RightsCommon Property ResourcesTopics to be DiscussedPublic GoodsPrivate Preferences for Public GoodsExternalitiesNegativeAction by one party imposes a cost on anoth

2、er partyPositiveAction by one party benefits another partyExternal CostScenarioSteel plant dumping waste in a riverThe entire steel market effluent can be reduced by lowering output (fixed proportions production function)External CostScenarioMarginal External Cost (MEC) is the cost imposed on fisher

3、men downstream for each level of production.Marginal Social Cost (MSC) is MC plus MEC.MCS = MCIDP1Aggregate social cost ofnegativeexternalityP1q1Q1MSCMSCIWhen there are negativeexternalities, the marginalsocial cost MSC is higherthan the marginal cost.External CostsFirm outputPriceIndustry outputPri

4、ceMECMECIThe differences isthe marginal externalcost MEC.q*P*Q*The industry petitiveoutput is Q1 while the efficientlevel is Q*. The profit maximizing firmproduces at q1 while the efficient output level is q*. External CostNegative Externalities encourage inefficient firms to remain in the industry

5、and create excessive production in the long run.ExternalitiesPositive Externalities and InefficiencyExternalities can also result in too little production, as can be shown in an example of home repair and landscaping.MCP1External BenefitsRepair LevelValueDIs research and development discouraged by p

6、ositiveexternalities?q1MSBMEBWhen there are positiveexternalities (the benefitsof repairs to neighbors),marginal social benefitsMSB are higher thanmarginal benefits D.q*P*A self-interested home ownerinvests q1 in repairs. Theefficient level of repairsq* is higher. The higher priceP1 discourages repa

7、ir.Ways of Correcting Market FailureAssumption: The market failure is pollutionFixed-proportion production technologyMust reduce output to reduce emissionsUse an output tax to reduce outputInput substitution possible by altering technologyThe Efficient Level of EmissionsLevel of Emissions246Dollarsp

8、er unitof Emissions02468101214161820222426MSCMCAE*The efficient level ofemissions is 12 (E*) where MCA = MSC.Assume:1) Competitive market2) Output and emissions decisions are independent3) Profit maximizing output chosenAt Eo the marginalcost of abating emissionsis greater than themarginal social co

9、st.E0At E1 the marginalsocial cost is greaterthan the marginal benefit.E1Why is this more efficientthan zero emissions?Ways of Correcting Market FailureOptions for Reducing Emissions to E*Emission StandardSet a legal limit on emissions at E* (12)Enforced by monetary and criminal penaltiesIncreases t

10、he cost of production and the threshold price to enter the industryStandards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*StandardFeeOptions for Reducing Emissions to E*Emissions FeeCharge levied on each unit of emissionWays of Correcting Market FailureTotalAbatement CostCost is l

11、ess than thefee if emissions were not reduced.Total Feeof AbatementStandards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*FeeStandards Versus FeesAssumptionsPolicymakers have asymmetric informationAdministrative costs require the same fee or standard for all firmsWays of Correctin

12、g Market FailureFirm 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 standa

13、rd ofabatement of 7 for 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.Advantages of FeesWhen equal standards must be used, fees achieve the same emission aba

14、tement at lower cost.Fees create an incentive to install equipment that would reduce emissions further.Ways of Correcting Market FailureABC is the increasein social cost less thedecrease in abatementcost.MarginalSocialCostMarginal Costof AbatementThe Case for StandardsLevel of EmissionsFee perUnit o

15、fEmissions0246810121416246810121416EBased on inpleteinformation standard is 9(12.5% decrease).ADE m*.Refundable 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) and the supply of recycledg

16、lass (Sr).M1PWithout refunds the price of glass is P and Sr is M1.SrSPM*With refunds Sr increasesto Sr and S increases to S.Externalities and Property RightsProperty RightsLegal rules describing what people or firms may do with their propertyFor exampleIf residents downstream owned the river (clean

17、water) they control upstream emissions.Bargaining and Economic EfficiencyEconomic efficiency can be achieved without government intervention when the externality affects relatively few parties and when property rights are well specified.Externalities and Property RightsProfits Under AlternativeEmiss

18、ions Choices (Daily)No filter, not treatment plant500100600Filter, no treatment plant300500800No filter, treatment plant500200700Filter, treatment plant300300600FactorysFishermensTotalProfitProfitProfitAssumptionsFactory pays for the filterFishermen pay for the treatment plantEfficient SolutionBuy t

19、he filter and do not build the plantExternalities and Property RightsBargaining with Alternative Property RightsNo CooperationProfit of factory$500$300Profit of fishermen$200$500CooperationProfit of factory$550$300Profit of fishermen$250$500Right to DumpRight to Clean WaterConclusion: Coase TheoremW

20、hen parties can bargain without cost and to their mutual advantage, the resulting oute will be efficient, regardless of how the property rights are specified.Externalities and Property RightsCostly Bargaining - The Role of Strategic BehaviorBargaining requires clearly defined rules and property righ

21、ts.Externalities and Property RightsA Legal Solution - Suing for DamagesFishermen have the right to clean waterFactory has two optionsNo filter, pay damagesProfit = $100 ($500 - $400)Filter, no damagesProfit = $300 ($500 - $200)Externalities and Property RightsA Legal Solution - Suing for DamagesFac

22、tory has the right to emit effluentFishermen have three optionsPut in treatment plantProfit = $200Filter and pay damagesProfit = $300 ($500 - $200)No plant, no filterProfit = $100Externalities and Property RightsConclusionA suit for damages results in an efficient oute.QuestionHow would imperfect in

23、formation impact the oute?Externalities and Property RightsThe Coase Theorem at WorkNegotiating an Efficient Solution1987 - New York garbage spill (200 tons) littered the New Jersey beachesThe potential cost of litigation resulted in a solution that was mutually beneficial to both parties.Common Pro

24、perty ResourcesCommon Property ResourceEveryone has free access.Likely to be overutilizedExamplesAir and waterFish and animal populationsMineralsCommon Property ResourcesFish per MonthBenefits,Costs($ perfish)DemandHowever, private costsunderestimate true cost.The efficient level of fish/month is F*

25、 whereMSC = MB (D)Marginal Social CostF*Private CostFCWithout control the numberof fish/month is FC where PC = MB.Common Property ResourcesSolutionPrivate ownershipQuestionWhen would private ownership be impractical?Crawfish Fishing in LousianaFinding the Efficient Crawfish CatchF = crawfish catch i

26、n millions of pounds/yrC = cost in dollars/poundCrawfish Fishing in LousianaDemandC = 0.401 = 0.0064FMSCC = -5.645 + 0.6509FPCC = -0.357 + 0.0573FCrawfish Fishing in LousianaEfficient Catch9.2 million poundsD = MSCCrawfish Catch(millions of pounds)CCost(dollars/pound)DemandMarginal Social CostPrivat

27、e CostCrawfish as a CommonProperty Resource0.325Public GoodsQuestionWhen should government replace firms as the producer of goods and services?Public GoodsPublic Good CharacteristicsNonrivalFor any given level of production the marginal cost of providing it to an additional consumer is ze

28、ro.NonexclusivePeople cannot be excluded from consuming the good.Public GoodsNot all government produced goods are public goodsSome are rival and nonexclusiveEducationParksD1D2DWhen a good is nonrival, the social marginalbenefit of consumption (D) , is determined byvertically summing the individual

29、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 + $4.00 or $5.50.Public GoodsPublic Goods and Market FailureHow much national defense did you consume las

30、t week?Public GoodsFree RidersThere is no way to provide some goods and services without benefiting everyone.Households do not have the incentive to pay what the item is worth to them.Free riders understate the value of a good or service so that they can enjoy its benefit without paying for it.Publi

31、c GoodsEstablishing a mosquito abatement panyHow do you measure output?Who do you charge?A mosquito meter?The Demand for Clean AirClean Air is a public goodNonexclusive and nonrivalWhat is the price of clean air?The Demand for Clean AirChoosing where to liveStudy in Boston correlates housing prices

32、with the quality of air and other characteristics of the houses and their neighborhoods.The Demand for Clean AirNitrogen Oxides (pphm)0Dollars1234567810920002500300050015001000Low IneMiddle IneHigh IneThe Demand for Clean AirFindingsAmount people are willing to pay for clean air increases substantia

33、lly as pollution increases.Higher ine earners are willing to pay more (the gap between the demand curves widen)National Academy of Sciences found that a 10% reduction in auto emissions yielded a benefit of $2 billion-somewhat greater than the cost.Private Preferences for Public GoodsGovernment produ

34、ction of a public good is advantageous because the government can assess taxes or fees to pay for it.Determining how much of a public good to provide when free riders exist is difficult.Determining the Levelof Educational SpendingEducational spendingper pupil$0Willingnessto pay$1200$600$1800$2400W1W

35、2W3AWThe efficient level of educational spending is determined by summing thewillingness to pay for education for eachof three citizens.Determining the Levelof Educational SpendingEducational spendingper pupil$0Willingnessto pay$1200$600$1800$2400W1W2W3AWWill majority rule yield an efficient oute?W1

36、 will vote for $600W2 and W3 will vote for $1200The median vote will always win in a majorityrule election.QuestionWill the median voter selection always be efficient?AnswerIf two of the three preferred $1200 there would be overinvestment.If two of the three preferred $600 there would be underinvestment.Private Preferences for Public