environment Flashcards
(16 cards)
market failure
- problem that violates assumption of 1st welfare theorem
- causes market economy to deliver outcome that doesn’t maximize efficiency
externality
- when actions of one economic agent directly affect another outside the market
3 types of negative externalities produced by SUVs
- environmental
- road deterioration
- safety
social optimum is such that
SMB = SMC
with a free market, quantity and price are such that
PMB = PMC
internalizing externalities
assigning responsibility so that those affected by it are compensated
Coase theorem part 1
when there’s well-defined property rights and costless bargaining -> negotiations between affected & causing parties can bring about socially optimal market quantity
Coase theorem part 2
efficiency of product producing externality doesn’t depend on property rights - as long as one agent has them
coasian theorem assignment problem
- assigning property rights is difficult when when externalities affect many agents
coasion theorem holdout problem
shared ownership of property rights makes decision power difficult
- if 10 fishermen own a lake that a firm is polluting, all 10 must agree on compensation price - one can HOLDOUT
coasian theorem transaction costs and negotiating problems
- costs of travelling, lawyer fees, etc.
3 public policy remedies for negative externalities
privacy policy: corrective tax/subsidy equal to marginal damage per unit
quantity regulation: government forces firms to produce certain quantity
quantity regulation with tradable permits
when are corrective taxes preferable
- when MD curve is flat
- if critical to minimize costs (cost will be limited to tax)
when is are tradable permits preferable
when MD curve is steep
when is quantity regulation preferable
- if critical to get quantity right
- when MD is steep
4 factors that make global warming challenging
global, irreversible, long-term, uncertain
