第18章 外部性与公共物品

1、Chapter 18Externalities and Public GoodsTopics to be Discussedn Externalitiesn Ways of Correcting Market Failuren Externalities and Property Rightsn Common Property ResourcesChapter 18Slide 2Topics to be Discussedn Public Goodsn Private Preferences for Public GoodsChapter 18Slide 3Externalitiesn Neg

2、ative Action by one party imposes a cost on another partyn Positive Action by one party benefits another partyChapter 18Slide 4External Costn Scenario Steel plant dumping waste in a river The entire steel market effluent can be reduced by lowering output (fixed proportions production function)Chapte

3、r 18Slide 5External Costn Scenario Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production. Marginal Social Cost (MSC) is MC plus MEC.Chapter 18Slide 6External CostsThe differences is the marginal external cost MEC.The profit maximizing firm produces at

4、q1 while the efficient output level is q*.When there are negative externalities, the marginal social cost MSC is higher than the marginal cost.MSCPricePriceMSCIMCS = MCIThe industry competitive output is Q1 while the efficient level is Q*.P*P1P1MECIMECDq*q1Q* Q1Industry outputFirm outputAggregate so

5、cial cost of negative externalityExternal Costn Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.Chapter 18Slide 8Externalitiesn Positive Externalities and Inefficiency Externalities can also result in too little production,

6、 as can be shown in an example of home repair and landscaping.Chapter 18Slide 9External BenefitsValueMSBDP1P*MCMEBRepair Levelq1q*Chapter 18Slide 10Is research and development discouraged by positive externalities?A self-interested home owner invests q1 in repairs. The efficient level of repairsq* i

7、s higher. The higher priceP1 discourages repair.When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits MSB are higher than marginal benefits D.Ways of Correcting Market Failuren Assumption: The market failure is pollution Fixed-proportion production te

8、chnologyu Must reduce output to reduce emissionsu Use an output tax to reduce output Input substitution possible by altering technologyChapter 18Slide 11The Efficient Level of EmissionsDollars per unitof EmissionsMSC6Why is this more efficientthan zero emissions?42MCAE0E1E*14024681012161820222426Lev

9、el of EmissionsChapter 18Slide 12The efficient level of emissions is 12 (E*) where MCA = MSC.At E1 the marginal social cost is greaterthan the marginal benefit.At Eo the marginal cost of abating emissionsis greater than the marginal social cost.Assume:1) Competitive market2) Output and emissions dec

10、isions are independent3) Profit maximizing output chosenWays of Correcting Market Failuren Options for Reducing Emissions to E* Emission Standardu Set a legal limit on emissions at E*(12)u Enforced by monetary and criminal penaltiesu Increases the cost of production and the threshold price to enter

11、the industryChapter 18Slide 13Standards and FeesDollars per unitof Emissions312Level of EmissionsChapter 18Slide 14MSCFeeStandardMCAE*Ways of Correcting Market Failuren Options for Reducing Emissions to E* Emissions Feeu Charge levied on each unit of emissionChapter 18Slide 15Standards and FeesDolla

12、rs per unitof Emissions312Level of EmissionsChapter 18Slide 16FeeMSCMCATotal Feeof AbatementE*Total Abatement CostCost is less than the fee if emissions were not reduced.Ways of Correcting Market Failuren Standards Versus Fees Assumptionsu Policymakers have asymmetric informationu Administrative cos

13、ts require the same fee or standard for all firmsChapter 18Slide 175The Case for Fees26The cost minimizing solution would be an abatement of 6 for firm 1 and 8 for firm 2 and MCA1= MCA2 = $3.43.7532.5021Level of Emissions01234567891011121314Chapter 18Slide 18Firm 1s Increased Abatement CostsFirm 2s

14、Reduced AbatementCostsIf a fee of $3 was imposed Firm 1 emissions would fall by 6 to 8. Firm 2 emissionswould fall by 8 to 6.MCA1 = MCA2: efficient solution.Fee perUnit ofMCA1EmissionsMCAThe impact of a standard of abatement of 7 for both firms is illustrated.Not efficient becauseMCA2 MCA1.Ways of C

15、orrecting Market Failuren 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.Chapter 18Slide 19The Case for StandardsCFee per Unit of Emissions1614121086Cost m

16、ent420246810121416Level of EmissionsChapter 18Slide 20Marginal Social CostEBMarginal of AbateADBased on incomplete information standard is 9 (12.5% decrease).ADE m*. Refundable DepositsSr$PPAmount of GlassM1M*Chapter 18Slide 33SrSvS SDPrice falls to P and the amount of recycled glass increases to M*

17、.Without refunds the price of glass is P and Sr is M1.With refunds Sr increases to Sr and S increases to S.The supply of glass is the sum of the supply of virgin glass (Sr) and the supply of recycledglass (Sr).Externalities and Property Rightsn Property Rights Legal rules describing what people or f

18、irms may do with their property For exampleu If residents downstream owned the river (clean water) they control upstream emissions.Chapter 18Slide 34Externalities and Property Rightsn Bargaining and Economic Efficiency Economic efficiency can be achieved without government intervention when the exte

19、rnality affects relatively few parties and when property rights are well specified.Chapter 18Slide 35Profits Under Alternative Emissions Choices (Daily)Factorys ProfitFishermens ProfitTotal ProfitNo filter, not treatment plant500100600Filter, no treatment plant No filter, treatment plantFilter, trea

20、tment plant300500300500200300800700600Chapter 18Slide 36Externalities and Property Rightsn Assumptions Factory pays for the filter Fishermen pay for the treatment plantn Efficient Solution Buy the filter and do not build the plantChapter 18Slide 37Bargaining withAlternative Property RightsRight to D

21、umpRight to Clean WaterNo CooperationProfit of factory Profit of fishermen$500$200$300$500CooperationProfit of factory Profit of fishermen$550$250$300$500Chapter 18Slide 38Externalities and Property Rightsn Conclusion: Coase Theorem When parties can bargain without cost and to their mutual advantage

22、, the resulting outcome will be efficient, regardless of how the property rights are specified.Chapter 18Slide 39Externalities and Property Rightsn Costly Bargaining - The Role of Strategic Behavior Bargaining requires clearly defined rules and property rights.Chapter 18Slide 40Externalities and Pro

23、perty Rightsn A Legal Solution - Suing for Damages Fishermen have the right to clean water Factory has two optionsu No filter, pay damages Profit = $100 ($500 - $400)u Filter, no damages Profit = $300 ($500 - $200)Chapter 18Slide 41Externalities and Property Rightsn A Legal Solution - Suing for Dama

24、ges Factory has the right to emit effluent Fishermen have three optionsu Put in treatment plant Profit = $200u Filter and pay damages Profit = $300 ($500 - $200)u No plant, no filter Profit = $100Chapter 18Slide 42Externalities and Property Rightsn Conclusion A suit for damages results in an efficie

25、nt outcome.n Question How would imperfect information impact the outcome?Chapter 18Slide 43The Coase Theorem at Workn Negotiating an Efficient Solution 1987 - New York garbage spill (200 tons) littered the New Jersey beachesu The potential cost of litigation resulted in a solution that was mutually

26、beneficial to both parties.Chapter 18Slide 44Common Property Resourcesn Common Property Resource Everyone has free access. Likely to be overutilized Examplesu Air and wateru Fish and animal populationsu MineralsChapter 18Slide 45Common Property ResourcesBenefits,Costs ($ per fish)stmandFish per Mont

27、hF*FCChapter 18Slide 46Marginal Social CostPrivate CoDeHowever, private costs underestimate true cost.The efficient level of fish/month is F* where MSC = MB (D)Without control the number of fish/month is FC where PC = MB.Common Property Resourcesn Solution Private ownershipn Question When would priv

28、ate ownership be impractical?Chapter 18Slide 47Crawfish Fishing in Lousianan Finding the Efficient Crawfish Catch F = crawfish catch in millions of pounds/yr C = cost in dollars/poundChapter 18Slide 48Crawfish Fishing in Lousianan Demand C = 0.401 = 0.0064Fn MSC C = -5.645 + 0.6509Fn PC C = -0.357 +

29、 0.0573FChapter 18Slide 49Crawfish Fishing in Lousianan Efficient Catch 9.2 million pounds D = MSCChapter 18Slide 50Crawfish as a Common Property ResourceCCost (dollars/pound)2.10Cost0.325mandCrawfish Catch (millions of pounds)9.211.9Chapter 18Slide 51Marginal Social CostPrivateDePublic Goodsn Quest

30、ion When should government replace firms as the producer of goods and services?Chapter 18Slide 52Public Goodsn Public Good Characteristics Nonrivalu For any given level of production the marginal cost of providing it to an additional consumer is zero. Nonexclusiveu People cannot be excluded from con

31、suming the good.Chapter 18Slide 53Public Goodsn Not all government produced goods are public goods Some are rival and nonexclusiveu Educationu ParksChapter 18Slide 54Efficient Public Good ProvisionBenefits (dollars)$7.00Marginal Cost$5.50D2$4.00D$1.50D1Output012345678910Chapter 18Slide 55Efficient o

32、utput occurs where MC = MB at 2 units of output. MB is$1.50 + $4.00 or $5.50.When a good is nonrival, the social marginal benefit of consumption (D) , is determined by vertically summing the individual demand curves for the good.Public Goodsn Public Goods and Market Failure How much national defense

33、 did you consume last week?Chapter 18Slide 56Public Goodsn Free Riders There 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 en

34、joy its benefit without paying for it.Chapter 18Slide 57Public Goodsn Establishing a mosquito abatement company How do you measure output? Who do you charge? A mosquito meter?Chapter 18Slide 58The Demand for Clean Airn Clean Air is a public good Nonexclusive and nonrivaln What is the price of clean

35、air?Chapter 18Slide 59The Demand for Clean Airn Choosing where to live Study in Boston correlates housing prices with the quality of air and other characteristics of the houses and their neighborhoods.Chapter 18Slide 60The Demand for Clean AirDollars3000High Income2500Middle Income2000Low Income1500

36、1000500Nitrogen Oxides (pphm)012345678910Chapter 18Slide 61The Demand for Clean Airn Findings Amount people are willing to pay for clean air increases substantially as pollution increases. Higher income earners are willing to pay more (the gap between the demand curves widen) National Academy of Sci

37、ences found that a 10% reduction in auto emissions yielded a benefit of $2 billion-somewhat greater than the cost.Chapter 18Slide 62Private Preferences for Public Goodsn Government production of a public good is advantageous because the government can assess taxes or fees to pay for it.n Determining

38、 how much of a public good to provide when free riders exist is difficult.Chapter 18Slide 63Determining the Levelof Educational SpendingWillingnessto pay$AWW1W2W3Educational spending per pupil$1200$1800$2400$0$600Chapter 18Slide 64The efficient level of educational spending is determined by summing

39、the willingness to pay for education for each of three citizens.Determining the Levelof Educational SpendingWillingnessto pay$AWW1W2W3Educational spending per pupil$1200$1800$2400$0$600Chapter 18Slide 65Will majority rule yield an efficient outcome? W1 will vote for $600 W2 and W3 will vote for $1200The median vote will always win in a majorityrule election.Private Preferences for Public Goodsn Question Will the median voter selection always be efficient?n Answer If two of the three preferred $1200 there would be overinvestment. If two of the three preferred $600 there would be underinves