Chapter 06: Measuring the Costs of Environmental Protection Flashcards
What is the engineering (explicit) approach to measuring costs?
To measuring costs: Engineering/Explicit
Predicting cost difficult
> Add up all the expected expenditures by firms + state, local, and federal governmental on pollution control and regulatory efforts
- Anything y get a receipt for/can see it
- Most widespread method in use
- Require making assumptions about future behavior: technologies adopted, complaince rates, etc.
What opportunity costs are associated with the engineering approach?
Need to factor in implicit costs
> Value resources generate in next best available use
- Only opportunity costs measure the true cost environmental protection
- Always opportunity/implicit cost in decisions (cost best alternative forgone)
Influences what the optimal quantity is
What does the engineering approach overstate and understate?
- Overstate true costs
- Understate true social opportunity costs
How does the engineering approach overstate the true costs?
Overstate true social opportunity costs to the extent that environmental policies:
1. increase productivity
2. increasing efficiency which available resources used
3. forces technological changes
4. improves workers health
5. improves provision of ecosystem services
6. reduce structural (long-run) unemployment or cyclical (business-cycle) unemployment by creating “green jobs”
Increased Productivty Causes:
- Technological change - increases productivity
- More productive use of resources
- Improving worker health
- Improving provision of ecosystems
There is a cost - but overstates due to benefits
What does increased productivity cause?
Increased Productivty Causes:
- Technological change - increases productivity
- More productive use of resources
- Improving worker health
- Improving provision of ecosystems
There is a cost - overstates due to benefits in engineering approach
How does the engineering approach understate the true social opportunity costs?
Understate true social opportunity costs to extent environmental policies:
1. Lowers productivity growth by diverting dollars would have gone into investment
2. Induces structural unemployment
(Boost longterm unemployment)
3. Increases monopoly power in the economy
What is the biggest unknown in estimating the costs of environmental protection?
Biggest unknown estimating costs environmental protection is impact on productivity
What are the opposing views of the effects of environmental protection measures on productivity?
Biggest unknown estimating costs environmental protection is impact on productivity
- Some argue environmental regulations been major contributor to productivity slowdown
- Argue that pollution control efforts spur productivity growth by forcing firms to become more effficient
What are the pro-productivity effects of regulation arguments:
-
Improve short-run efficiency of resource saving money for firms
- Fixed amount resources short term
- Squeeze out current resources (save money)
-
Encouraging firms invest more, “smarter” for long run
- Porter Hypothesis: regulation, enhances long-run competitiveness
- Regulation may play technology-forcing role
- Reducing health-care costs/improving ecosystem services = free up capital long-run investment
-
Tech investment to reduce costs
- Ex. Carbon capture, too expensive at the moment
- Fear factor high diminishing marginal returns - effective shortrun
What is the Porter Hypothesis?
Porter Hypothesis: regulation, enhances long-run competitiveness
Regulation may play technology-forcing role
What are the anti-productivity effects of regulation arguments:
- Impose direct costs on firms - crowd out investment in conventional capital
- Slowdown in new investment - may occur when regulation more stringent for new sources of pollution (”grandfathering”)
- Regulation = higher prices important inputs (further crowding out)
- Regulation = frustrate entrepreneurial activity (red tape)
The crowding out effect suggests rising public sector spending drives down private sector spending.
There are three main reasons for the crowding out effect to take place: economics, social welfare, and infrastructure. Crowding in, on the other hand, suggests government borrowing can actually increase demand.
What is crowding out?
The crowding out effect suggests rising public sector spending drives down private sector spending.
There are three main reasons for the crowding out effect to take place: economics, social welfare, and infrastructure. Crowding in, on the other hand, suggests government borrowing can actually increase demand.
What are the deux aspects to productivity impacts of regulations?
- Cost regulation
- Employment impacts
What are the cost regulatory effects or productivity impacts due to regulations?
Data: Barbara and McConnell
- 10-30% productivity decline in heavily regulated industries could accounted for environemntal regulation
- x < 10-20% of post 1970 showndown can be attributed environmental regulation
What are the four aspects of employment effects due to productivity impacts due to environmental regulations?
- Not create long run employment
- Layoffs due to regulation
- Pollution havens?
- Green jobs?
What is the double-divided Hypothesis?
Pollution tax could benefit economy:
- Internalizing externalities (firms & consumers stop over-consuming “dirty” goods)
- Benefits from use of tax reveneu
