微观经济学英文课件：chapter-18 Externalities and Public Goods

1、Chapter 18Externalities and Public Goods1Chapter 1Topics to be DiscussedExternalitiesWays of Correcting Market FailureExternalities and Property RightsCommon Property Resources2Chapter 1Topics to be DiscussedPublic GoodsPrivate Preferences for Public Goods3Chapter 1ExternalitiesNegativeAction by one

2、 party imposes a cost on another partyPositiveAction by one party benefits another party4Chapter 1External CostScenarioSteel plant dumping waste in a riverThe entire steel market effluent can be reduced by lowering output (fixed proportions production function)5Chapter 1External CostScenarioMarginal

3、 External Cost (MEC) is the cost imposed on fishermen downstream for each level of production.Marginal Social Cost (MSC) is MC plus MEC.6Chapter 1MCS = MCIDP1Aggregate social cost ofnegativeexternalityP1q1Q1MSCMSCIWhen there are negativeexternalities, the marginalsocial cost MSC is higherthan the ma

4、rginal 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*. 7Chapter 1External CostNega

5、tive Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.8Chapter 1ExternalitiesPositive Externalities and InefficiencyExternalities can also result in too little production, as can be shown in an example of home repair and landscaping.

6、9Chapter 1MCP1External BenefitsRepair LevelValueDIs research and development discouraged by positiveexternalities?q1MSBMEBWhen there are positiveexternalities (the benefitsof repairs to neighbors),marginal social benefitsMSB are higher thanmarginal benefits D.q*P*A self-interested home ownerinvests

7、q1 in repairs. Theefficient level of repairsq* is higher. The higher priceP1 discourages repair.10Chapter 1Ways of Correcting Market FailureAssumption: The market failure is pollutionFixed-proportion production technologyMust reduce output to reduce emissionsUse an output tax to reduce outputInput s

8、ubstitution possible by altering technology11Chapter 1The Efficient Level of EmissionsLevel of Emissions246Dollarsper unitof Emissions02468101214161820222426MSCMCAE*The efficient level ofemissions is 12 (E*) where MCA = MSC.Assume:1) Competitive market2) Output and emissions decisions are independen

9、t3) 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?12Chapter 1Ways of Correcting Market FailureOptions for Reducing E

10、missions to E*Emission StandardSet a legal limit on emissions at E* (12)Enforced by monetary and criminal penaltiesIncreases the cost of production and the threshold price to enter the industry13Chapter 1Standards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*StandardFee14Chapter 1

11、Options for Reducing Emissions to E*Emissions FeeCharge levied on each unit of emissionWays of Correcting Market Failure15Chapter 1TotalAbatement CostCost is less than thefee if emissions were not reduced.Total Feeof AbatementStandards and FeesLevel of EmissionsDollarsper unitof EmissionsMSCMCA312E*

12、Fee16Chapter 1Standards Versus FeesAssumptionsPolicymakers have asymmetric informationAdministrative costs require the same fee or standard for all firmsWays of Correcting Market Failure17Chapter 1Firm 2s ReducedAbatementCostsFirm 1s IncreasedAbatement CostsMCA1MCA2The Case for FeesLevel of Emission

13、s246Fee 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 both firmsis illustrated.Not efficient becauseMCA2 MCA1.If a fee of $3 was imposedFirm 1 emissi

14、ons would fallby 6 to 8. Firm 2 emissionswould fall by 8 to 6.MCA1 = MCA2: efficient solution.18Chapter 1Advantages of FeesWhen 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.Ways

15、of Correcting Market Failure19Chapter 1ABC is the increasein social cost less thedecrease in abatementcost.MarginalSocialCostMarginal Costof AbatementThe Case for StandardsLevel of EmissionsFee perUnit ofEmissions0246810121416246810121416EBased on incompleteinformation standard is 9(12.5% decrease).

16、ADE m*.32Chapter 1Refundable 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 recycledglass (Sr).M1PWithout refunds the price of glass is P and Sr is M1.SrSPM*With refund

17、s Sr increasesto Sr and S increases to S.33Chapter 1Externalities and Property RightsProperty RightsLegal rules describing what people or firms may do with their propertyFor exampleIf residents downstream owned the river (clean water) they control upstream emissions.34Chapter 1Bargaining and Economi

18、c 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 Rights35Chapter 1Profits Under AlternativeEmissions Choices (Daily)No filter, not treatment plant

19、500100600Filter, no treatment plant300500800No filter, treatment plant500200700Filter, treatment plant300300600FactorysFishermensTotalProfitProfitProfit36Chapter 1AssumptionsFactory pays for the filterFishermen pay for the treatment plantEfficient SolutionBuy the filter and do not build the plantExt

20、ernalities and Property Rights37Chapter 1Bargaining 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 Water38Chapter 1Conclusion: Coase TheoremWhen parties can b

21、argain without cost and to their mutual advantage, the resulting outcome will be efficient, regardless of how the property rights are specified.Externalities and Property Rights39Chapter 1Costly Bargaining - The Role of Strategic BehaviorBargaining requires clearly defined rules and property rights.

22、Externalities and Property Rights40Chapter 1A 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 Rights41Chapter 1A Legal Solution - S

23、uing for DamagesFactory 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 Rights42Chapter 1ConclusionA suit for damages results in an efficient outco

24、me.QuestionHow would imperfect information impact the outcome?Externalities and Property Rights43Chapter 1The 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

25、 mutually beneficial to both parties.44Chapter 1Common Property ResourcesCommon Property ResourceEveryone has free access.Likely to be overutilizedExamplesAir and waterFish and animal populationsMinerals45Chapter 1Common Property ResourcesFish per MonthBenefits,Costs($ perfish)DemandHowever, private

26、 costsunderestimate true cost.The efficient level of fish/month is F* whereMSC = MB (D)Marginal Social CostF*Private CostFCWithout control the numberof fish/month is FC where PC = MB.46Chapter 1Common Property ResourcesSolutionPrivate ownershipQuestionWhen would private ownership be impractical?47Ch

27、apter 1Crawfish Fishing in LousianaFinding the Efficient Crawfish CatchF = crawfish catch in millions of pounds/yrC = cost in dollars/pound48Chapter 1Crawfish Fishing in LousianaDemandC = 0.401 = 0.0064FMSCC = -5.645 + 0.6509FPCC = -0.357 + 0.0573F49Chapter 1Crawfish Fishing in LousianaEfficient Cat

28、ch9.2 million poundsD = MSC50Chapter 1Crawfish Catch(millions of pounds)CCost(dollars/pound)DemandMarginal Social CostPrivate CostCrawfish as a CommonProperty Resource11.92.109.20.32551Chapter 1Public GoodsQuestionWhen should government replace firms as the producer of goods and services?52Chapter 1

29、Public GoodsPublic Good CharacteristicsNonrivalFor any given level of production the marginal cost of providing it to an additional consumer is zero.NonexclusivePeople cannot be excluded from consuming the good.53Chapter 1Public GoodsNot all government produced goods are public goodsSome are rival a

30、nd nonexclusiveEducationParks54Chapter 1D1D2DWhen a good 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$1.50Effici

31、ent output occurswhere MC = MB at 2units of output. MB is$1.50 + $4.00 or $5.50.55Chapter 1Public GoodsPublic Goods and Market FailureHow much national defense did you consume last week?56Chapter 1Public GoodsFree RidersThere is no way to provide some goods and services without benefiting everyone.H

32、ouseholds 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.57Chapter 1Public GoodsEstablishing a mosquito abatement companyHow do you measure output?Who do you charge?A mosqu

33、ito meter?58Chapter 1The Demand for Clean AirClean Air is a public goodNonexclusive and nonrivalWhat is the price of clean air?59Chapter 1The Demand for Clean AirChoosing where to liveStudy in Boston correlates housing prices with the quality of air and other characteristics of the houses and their

34、neighborhoods.60Chapter 1The Demand for Clean AirNitrogen Oxides (pphm)0Dollars1234567810920002500300050015001000Low IncomeMiddle IncomeHigh Income61Chapter 1The Demand for Clean AirFindingsAmount people are willing to pay for clean air increases substantially as pollution increases.Higher income ea

35、rners 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.62Chapter 1Private Preferences for Public GoodsGovernment production of a public good is adv

36、antageous 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.63Chapter 1Determining the Levelof Educational SpendingEducational spendingper pupil$0Willingnessto pay$1200$600$1800$2400W1W2W3AWThe efficient

37、 level of educational spending is determined by summing thewillingness to pay for education for eachof three citizens.64Chapter 1Determining the Levelof Educational SpendingEducational spendingper pupil$0Willingnessto pay$1200$600$1800$2400W1W2W3AWWill majority rule yield an efficient outcome?W1 wil

38、l vote for $600W2 and W3 will vote for $1200The median vote will always win in a majorityrule election.65Chapter 1QuestionWill 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 Goods66Chapter