Environmental Economics Flashcards
What is Per capita figure?
Per person, divided by the population
Benefit to using per capita figure
Easier to compare countries as makes it standardized
When does the market work well?
- Markets use the price to show g/s in demand
- Price allocates scarce resources into the most efficient use
- Price sends messages about the real scarcity of g/s. These messages motivate production, consume, invest and innovation that make most use od economies productive potential
What is an externality?
A +/-, is an uncompensated benefit/cost of production or consumption, usually third party
Example of positive externalities
Solar pannels, Christmas lights, library, house price increase when school is built near
Examples of negative externalities
Smoking, pollution from factory
Public and Private solutions to externality costs
Tax
Subsidy
Legislation
Private = Bargaining
What is Lump Sum Pigouvian tax
Fixed about of tax on the polluting firm cost of production, this gives an incentive to reduce pollution
- Reduces pollution to a socially efficient level
What is Per Unit Pigouvian tax
Levelled on each unit produced, added to polluting firms’ cost of production, gives an incentive to reduce production
Problems with Pigouvian tax
- Likely to be inaccurate and socially efficient level not achieved (Guesswork)
- Must be consistent with macro policy
- Politically unappealing
- Higher prices
- Unfair to lower polluting firms
What is Polluting Permits (Cap and Trade)
Permit = Right to pollute (emit a specified amount)
- Higher cost of production
- Gov issue a limited amout to set a pollution max (Cap)
- Can create a market for trading permits
Trading Permits
- Gov can create a market for this trading
- Firms that can easily lower pollution will sell
- Firms will buy if MC of lowering pollution is higher than market price of permit
Problems with tradeable pollution permits
- Potential for uneven distribution of pollution (firms can accumulate permits)
- Too many/ few permits issues (hard to estimate pollution
- Admin costs
What is the Coase theorem?
- Conditions in which private markets can deal with externalities without gov intervention. Here property rights are appropriately assigned
Problems with Coase theorem
- Transaction costs = Unrealistic assumptions, cost for seach, negotiation
- Free riding = many externalities are public goods, costly to exclude
- Imperfect info = Exaggerations can obstruct bargaining
Solutions for Coase Theroem
Follow Ostram
- Clearly definned boundary
- Monitoring
- Collective arrangement without external inference
Behavioural interventions
- Leveraging social norms with comparisons of others
- Supports cognitive overload by simplification and reminders
- Use opt out
e.g single use plastic bag
