Chapter 6 Flashcards
What is the engineering approach?
The standard method of estimating the costs of environmental protection, simply adding direct compliance and regulatory expenses.
Add up all the expected expenditures by firms plus state, local, and federal governments on pollution and regulatory efforts.
These are predicted costs, so they require making assumptions about future behaviours.
Requires making assumptions about future behavior.
What is an opportunity cost?
The value of resources in their next available use. The value of the best alternative that we passed out on.
Only opportunity costs measure the true cost of environmental protection.
also known as the implicit costs. If implicit costs are large, the supply curve shifts upwards.
In which cases will engineering costs overstate the true social costs?
- Government involvement increases productivity by:
- increasing the efficiency with which available resources are used.
- forcing technological change.
- improving worker health.
- improving the provision of ecosystem services. - Government involvement reduces structural (long-term) unemployment by creating green jobs.
What does growing productivity entail?
Rising productivity means that the economic pie per worker is growing. A growing pie makes it easier for society to accommodate both the needs of a growing population and the desire for a higher material standard of living.
What is the relationship between pollution control and productivity?
Pollution-control efforts can spur productivity growth by forcing firms to become more efficient in their use of resources and adopt new and cheaper production techniques.
What are the ways that regulation can promote productivity?
- By improving the short-run efficiency of resource use, saving money for firms
- Encouraging firms to invest more or invest smarter for the long run.
- porter hypothesis: regulation, enhances long run competitiveness.
- regulations may play a technology forcing role. - Reducing healthcare costs or improving ecosystem services, which frees up capital long run investments.
What is the Porter hypothesis?
Regulation, while imposing short-run costs on firms, enhances their long-run competitiveness.
A way to boost productivcirty: fear factor is a good motivator.
Technological advancements that bring fear in legislation can work in the short term but will not in the long run.
For example:developing new products that reduce waste while cutting costs and pollution.
What is a technology-forcing role?
When regulation encourages firms to develop more productive manufacturing methods by setting standards they must achieve.
Explain how regulation increases productivity in terms of improving short-run efficiency of resource use.
If firms and house holds adopt already existing energy-efficient technologies, they could achieve a lo tof savings.
Example: more efficient lighting, cooling, heating.
These savings in turn would free up capital for productive investment in other sectors of the economy.
Explain how regulation increases productivity in terms of encouraging firms to invest more or smarter in the long-run.
Porter hypothesis - enhances long-run competitiveness. Manufacturing new technologies that are efficient.
Environmental leadership is no less profitable.
Explain how regulation increases productivity in terms of health and ecosystems benefits that arise from environmental protection.
In the absence of pollution control - government has to deal with lots of sickness and premature mortality. Also, firms that rely on clean air or water fr production processes have to face their own clean up costs.
This would reduce productivity because expenses on health care and private clean up would rise. This represents a drain on productive investment.
Instead, they can focus on freeing up capital for long-run investments.
What are the ways that regulation can dampen productivity?
- Regulation imposes direct costs on regulated firms.
- these costs may crowd out investment in conventional capital. - Further owed own in new investments may occur when regulation is more stringent for new sources of pollution.
- companies will hang on to old polluting equipment to avoid having to pay for modern pollution control technologies. - Regulation can cause higher prices for important economy-wide inputs like energy or waste disposal.
- these cost increases will lead to reductions in cap it investment in secondary industries directly unaffected by regulation (example: health and financial sectors). - Regulation may frustrate entrepreneurial activity.
- filling out forms, permits = additional hassle to their business, which can discourage investments.
Why is it difficult to assess the overall impact of environmental cleanup?
Long-run productivity impacts are important, but difficult to assess their overall impact.
The true cost of environmental cleanup is difficult to know - another challenge of benefit-cost based decision -making.
What are the 4 lesions about the employment impacts of environmental regulation?
- No economy-wide trade off: at the macro level, gradual job losses are at least matched by job gains.
- Green job growth: spending on environmental protections can boost net job growth when a regional economy is not already at full employement.
- small numbers of actual layoffs: direct job loss arising from plant shutdown due to environmental protection have been very small.
- Few pollution havens: pollution-intensive firms are not fleeing in large numbers to developing countries with lax regulations.
Explain the following employment impact of environmental regulation: no economy-wide trade-off
Regulation cannot create long-run unemployment - it ill contribute to a shift in the types of jobs that the economy creates.
Environmental protection provides employment heavily weighted to the traditional blue-collar manufacturing and construction sectors. The bulk of environmental spending remains in the private sector.
More new jobs have been created than have been lost.
