曼昆《经济学原理》英文课件princ-ch10-presentation(2010)

1、Externalities,Economics,P R I N C I P L E S O F,N. Gregory Mankiw,10,In this chapter, look for the answers to these questions:,What is an externality? Why do externalities make market outcomes inefficient? How can people sometimes solve the problem of externalities on their own? Why do such private

2、solutions not always work? What public policies aim to solve the problem of externalities?,1,EXTERNALITIES,2,A Review,One basic principle of economics: Markets are usually a good way to organize economy activity. In absence of market failures, the competitive market outcome is efficient, maximizes t

3、otal surplus. Individuals choose their courses of action by weighing the expected marginal benefits of any decision against its expected marginal costs.,EXTERNALITIES,3,Introduction,One type of market failure: externality An externality arises when a person engages in an activity that influences the

4、 well-being of a bystander and yet neither pays nor receives any compensation for that effect. Externalities can be negative or positive, depending on whether impact on bystander is adverse or beneficial.,EXTERNALITIES,4,Introduction,Self-interested buyers and sellers neglect the external costs or b

5、enefits of their actions, so the market outcome is not efficient. Another principle of economics : Governments can sometimes improve market outcomes. In presence of externalities, public policy can improve efficiency.,EXTERNALITIES,5,A story,Scenario Motorcycle rider leaves home early in the morning

6、. Imposes on neighbors still asleep. Question What kind of externality exists here? How can the externality be solved? In the real world, the story happens every day. Why dont people use the way above to solve the problem?,EXTERNALITIES,6,Examples of Negative Externalities,Air pollution from a facto

7、ry The neighbors barking dog Late-night stereo blasting from the dorm room next to yours Noise pollution from construction projects Health risk to others from second-hand smoke Talking on cell phone while driving makes the roads less safe for others,EXTERNALITIES,7,Recap of Welfare Economics,Demand

8、curve shows private value, the value to buyers (the prices they are willing to pay).,Supply curve shows private cost, the costs directly incurred by sellers.,The market eqm maximizes consumer + producer surplus.,EXTERNALITIES,8,Analysis of a Negative Externality,Supply (private cost),External cost =

9、 value of the negative impact on bystanders = $1 per gallon (value of harm from smog, greenhouse gases),Social cost = private + external cost,EXTERNALITIES,9,Analysis of a Negative Externality,D,S,Social cost,The socially optimal quantity is 20 gallons.,At any Q 20, social cost of the last gallon is

10、 greater than its value to society.,25,EXTERNALITIES,10,Analysis of a Negative Externality,D,S,Social cost,Market eqm (Q = 25) is greater than social optimum (Q = 20).,25,One solution: tax sellers $1/gallon, would shift S curve up $1.,EXTERNALITIES,11,Examples of Positive Externalities,Being vaccina

11、ted against contagious diseases protects not only you, but people who visit the salad bar after you. R market Q would equal optimal Q.),EXTERNALITIES,16,If negative externality market quantity larger than socially desirable If positive externality market quantity smaller than socially desirable To r

12、emedy the problem, “internalize the externality” tax goods with negative externalities subsidize goods with positive externalities,Effects of Externalities: Summary,EXTERNALITIES,17,Case Study: Technology Spillover,A potentially important type of positive externality is called a technology spillover

13、 - the impact of one firms research and production efforts on other firms access to technological advance. In this case, the government can internalize the externality by subsidizing the effort of R&D. Technological progress is the key to why living standards rise over time. But different markets ha

14、ve different technology spillovers, and the size of technology spillovers is difficult to measure.,EXTERNALITIES,18,Discuss: Who should be paid?,Silvia lives near a airport. One day, she was awaked by a plane. She thought she should be paid for this. Should she be paid? Should she be paid for neighb

15、ors barking dog? If everyone who lives near the airport request payment for the noise, it will be a huge cost for the airport. Who will bear the cost? Is it possible that every externalities be paid?,EXTERNALITIES,19,Adjudication and Property Rights,To solve the problems with externalities, clearly

16、defined property rights is required. Adjudication A process for deciding who has which rights Clarifies property rights In some cases, adjudication is difficult, because the real world is complicated. Technology sometimes forces rapid changes, and new rules must be formed if negative externalities r

17、apidly multiply.,Private Solutions to Externalities,Types of private solutions: Moral codes and social sanctions, e.g., The Golden Rule: “Do unto others as you would have them do unto you.” Charities, e.g., Greenpeace International Integrating different types of businesses Negotiation on contracts b

18、etween market participants and the affected bystanders,EXTERNALITIES,20,Integrating of Businesses,Integrating different firms could internalize the externality. Integration makes the firm bear the external costs or gain the external benefits, consequently make the firms consider all costs and benefi

19、ts. If the businesses could be integrated with no coat, the market outcome will became efficient. The problem with this solve is, not all industries can be integrated.,EXTERNALITIES,21,Negotiation: The Coase Theorem,The Coase theorem: If private parties can bargain over the allocation of resources a

20、t no cost, they can solve the externalities problem and allocate resources efficiently on their own. Clearly defined property rights is the necessary condition of Coase Theorem, but the initial distribution of rights doesnt matter.,EXTERNALITIES,22,EXTERNALITIES,23,The Coase Theorem: An Example,Dick

21、 owns a dog named Spot. Negative externality: Spots barking disturbs Jane, Dicks neighbor. The socially efficient outcome maximizes Dicks + Janes well-being. If Dick values having Spot more than Jane values peace & quiet, the dog should stay. Coase theorem: The private market will reach the efficien

22、t outcome on its own,See Spot bark.,EXTERNALITIES,24,The Coase Theorem: An Example,CASE 1: Dick has the right to keep Spot. Benefit to Dick of having Spot = $500 Cost to Jane of Spots barking = $800 Socially efficient outcome: Spot goes bye-bye. Private outcome: Jane pays Dick $600 to get rid of Spo

23、t, both Jane and Dick are better off. Private outcome = efficient outcome.,EXTERNALITIES,25,The Coase Theorem: An Example,CASE 2: Dick has the right to keep Spot. Benefit to Dick of having Spot = $1000 Cost to Jane of Spots barking = $800 Socially efficient outcome: See Spot stay. Private outcome: J

24、ane not willing to pay more than $800, Dick not willing to accept less than $1000, so Spot stays. Private outcome = efficient outcome.,EXTERNALITIES,26,The Coase Theorem: An Example,CASE 3: Jane has the legal right to peace & quiet. Benefit to Dick of having Spot = $800 Cost to Jane of Spots barking

25、 = $500 Socially efficient outcome: Dick keeps Spot. Private outcome: Dick pays Jane $600 to put up with Spots barking. Private outcome = efficient outcome.,The private market achieves the efficient outcome regardless of the initial distribution of rights.,There is a vacant field between Smith and J

26、ohns house. They want to plant some flowers in the field. Smith want to plant rose, as rose could bring him $800 value, which is more than daisys $200. But John want to plant daisy as its value is $600 for him and roses is $400. A. Describe a Coase-like private solution. B. Can you think of any reas

27、ons why this solution might not work in the real world?,A C T I V E L E A R N I N G 3 Applying Coase,27,EXTERNALITIES,28,Why Private Solutions Do Not Always Work,1. Transaction costs: The costs parties incur in the process of agreeing to and following through on a bargain. These costs may make it im

28、possible to reach a mutually beneficial agreement. 2. Coordination problems: If # of parties is very large, coordinating them may be costly, difficult, or impossible.,EXTERNALITIES,29,Why Private Solutions Do Not Always Work,3. Stubbornness: Even if a beneficial agreement is possible, each party may

29、 hold out for a bigger share of the benefit. 4. Adjudication problems: In some cases, adjudication is difficult or impossible. The property rights are not clear all the time.,Public Policies Toward Externalities,Two approaches: Command-and-control policies regulate behavior directly. Market-based po

30、licies provide incentives so that private decision-makers will choose to solve the problem on their own. Two examples: corrective taxes and subsidies tradable pollution permits,EXTERNALITIES,30,EXTERNALITIES,31,Regulation,The government can remedy an externality by making certain behaviors either re

31、quired or forbidden. Examples: limits on quantity of pollution emitted requirements that firms adopt a particular technology to reduce emissions The way to regulation is legislation. The essence of legislation clarifies property rights.,EXTERNALITIES,32,Problems with Regulation,Regulation creates ne

32、w rules. New rules always raises the question of fairness and. Despite the stated goals, it would be impossible to prohibit all polluting activity. Regulation cant minimize the cost of achieving objectives The firm with lowest cost to control pollution may not do that mostly.,EXTERNALITIES,33,Correc

33、tive Taxes & Subsidies,Corrective tax: a tax designed to induce private decision-makers to take account of the social costs that arise from a negative externality Also called Pigouvian taxes after Arthur Pigou (1877-1959). The ideal corrective tax = external cost For activities with positive externa

34、lities, ideal corrective subsidy = external benefit,EXTERNALITIES,34,Corrective Taxes & Subsidies,Other taxes and subsidies distort incentives and move economy away from the social optimum. Corrective taxes & subsidies align private incentives with societys interests make private decision-makers tak

35、e into account the external costs and benefits of their actions move economy toward a more efficient allocation of resources.,EXTERNALITIES,35,Corrective Taxes vs. Regulations: An Example,Suppose that two factories - a paper mill and a steel mill - are each emitting 40 tons of sulfur dioxide into th

36、e environment per year. The EPA decides that it wants to reduce the amount of pollution. It considers two solutions: - Regulation: The EPA could tell each factory to reduce its pollution to 30 tons of glop per year. - Corrective tax: The EPA could levy a tax on each factory of $50,00 for each ton of

37、 glop it emits. Which solution do you think is better?,Acme and US Electric run coal-burning power plants. Each emits 40 tons of sulfur dioxide per month, total emissions = 80 tons/month. Goal: Reduce SO2 emissions 25%, to 60 tons/month Cost of reducing emissions: $100/ton for Acme, $200/ton for USE

38、 Policy option 1: Regulation Every firm must cut its emissions 25% (10 tons). Your task: Compute the cost to each firm and total cost of achieving goal using this policy.,A C T I V E L E A R N I N G 2 A. Regulating lower SO2 emissions,36,Each firm must reduce emissions by 10 tons. Cost of reducing e

39、missions: $100/ton for Acme, $200/ton for USE. Compute cost of achieving goal with this policy: Cost to Acme: (10 tons) x ($100/ton) = $1000 Cost to USE: (10 tons) x ($200/ton) = $2000 Total cost of achieving goal = $3000,A C T I V E L E A R N I N G 2 A. Answers,37,Initially, Acme and USE each emit

40、40 tons SO2/month. Goal: reduce SO2 emissions to 60 tons/month total. Policy option 2: Corrective Taxes Tax 100 on every ton of emission. Each firm may select from two options: Reduce emissions, and be free from tax Go on emits, and pay the tax Your task: Tell who will choose which option. If the tw

41、o firm chose to emit 60 tons/month in all, compute the cost of achieving goal.,A C T I V E L E A R N I N G 2 Continued B. Tax on SO2 emissions,38,Policy: Tax 100 per ton Cost of reducing emissions: $100/ton for Acme, $200/ton for USE. Acme will reduce pollution, and USE will go on emit Cost of achie

42、ving goal: Acme: (20 tons) x ($100/ton) + $2000 = $4000 Acme: $4000 = $4000 Tax: $2000 + $4000 = $6000 Total cost of achieving goal = $2000,A C T I V E L E A R N I N G 2 B. Answers,39,EXTERNALITIES,40,Corrective Taxes vs. Regulations,Different firms have different costs of pollution abatement. If fi

43、rms with the lowest abatement costs reduce pollution the most, it is said to be efficient. A pollution tax is efficient: Firms with low abatement costs will reduce pollution to reduce their tax burden. Firms with high abatement costs prefer to pay the tax. In contrast, a regulation requiring all fir

44、ms to reduce pollution by a specific amount not efficient.,EXTERNALITIES,41,Corrective Taxes vs. Regulations,Corrective taxes are better for the environment: The corrective tax gives firms incentive to continue reducing pollution as long as the cost of doing so is less than the tax. If a cleaner tec

45、hnology becomes available to reduce the marginal cost to control pollution, the tax gives firms an incentive to adopt it. In contrast, firms have no incentive for further reduction beyond the level specified in a regulation.,EXTERNALITIES,42,Example of a Corrective Tax: The Gas Tax,The gas tax targe

46、ts three negative externalities: Congestion The more you drive, the more you contribute to congestion. Accidents Larger vehicles cause more damage in an accident. Pollution Burning fossil fuels produces greenhouse gases.,EXTERNALITIES,43,Tradable Pollution Permits,A tradable pollution permits system

47、 reduces pollution at lower cost than regulation. Firms with low cost of reducing pollution could do so and sell their unused permits. Firms with high cost of reducing pollution could buy permits. Result: Pollution reduction is concentrated among those firms with lowest costs.,Initially, Acme and US

48、E each emit 40 tons SO2/month. Goal: reduce SO2 emissions to 60 tons/month total. Policy option 3: Tradable pollution permits Issue 60 permits, each allows one ton SO2 emissions. Give 30 permits to each firm. Establish market for trading permits. Each firm may use all its permits to emit 30 tons, ma

49、y emit 30 tons. Your task: Compute cost of achieving goal if Acme uses 20 permits and sells 10 to USE for $150 each.,A C T I V E L E A R N I N G 2 Continued C. Tradable pollution permits,44,Goal: reduce emissions from 80 to 60 tons Cost of reducing emissions: $100/ton for Acme, $200/ton for USE. Com

50、pute cost of achieving goal: Acme Could sell 10 permits to USE for $150 each Acme sells 10 permits to USE, gets $1500 uses 20 permits, emits 20 tons SO2 spends $2000 to reduce emissions by 20 tons net cost to Acme: $2000 - $1500 = $500 continued,A C T I V E L E A R N I N G 2 C. Answers,45,Goal: redu

51、ce emissions from 80 to 60 tons Cost of reducing emissions: $100/ton for Acme, $200/ton for USE. USE buys 10 permits from Acme, spends $1500 uses these 10 plus original 30 permits, emits 40 tons spends nothing on abatement net cost to USE = $1500 Total cost of achieving goal = $500 + $1500 = $2000 U

52、sing tradable permits, goal is achieved at lower total cost and lower cost to each firm than using regulation.,A C T I V E L E A R N I N G 2 B. Answers, continued,46,EXTERNALITIES,47,The Bubble Concept,A giant bubble exists over the whole firm Control total emissions into the bubble. Under this poli

53、cy firms Allow emissions to rise if control is costly. Making up where control is less costly. Environmentalists It is not a logical reason to pollute at another factory that the firm have the ability to control pollute at one factory No one owned the right to pollute. So, the right could not be tra

54、ded.,EXTERNALITIES,48,Corrective Taxes vs. Tradable Pollution Permits,Like most demand curves, firms demand for the ability to pollute is a downward-sloping function of the “price” of polluting. Both of the two policies could achieve the same target. A corrective tax raises this price and thus reduc

55、es the quantity of pollution firms demand. A tradable permits system restricts the supply of pollution rights, has the same effect as the tax. Both of the two policies have the same social cost.,EXTERNALITIES,49,Corrective Taxes vs. Tradable Pollution Permits,When policymakers do not know the positi

56、on of this demand curve, the two policies will be different: The tax system could internalize the externality, so it is more efficient. This depend on the accurate estimate of the externality. The permits system could achieves pollution reduction targets more precisely.,EXTERNALITIES,50,Discuss: the

57、 Right to Cut a Tree,There is a tree in your neighbors yard. It offers you a pleasant shady place, but brings many bugs to your neighbor. So she want to cut the tree. Does she has the right to cut the tree? You talk to her that you think her hatred of the tree is less than your affection. How can you prove that? How can you persuade her to keep the tree?,EXTERNALITIES,51,Discuss: the Right to Pollute,The is a signboard in a garden on which written “there will be $1 penalty for throwing garbage.” Some one threw an empty bottle in the garden, although he had seen the signboard, and h