Lecture 3 Flashcards

Question

Quantity Regulation/ Corrective Tax when there are several plants Quantity regulation with tradeable permits

Answer 1

Regulation: For each plant, the marginal cost of pollution reduction is set equal to the marginal social benefit of that reduction. (MCr=MSBr) Tax: Pigouvian taxes induce efficient production by increasing the cost of the input by the amount of its external damage. Quantity regulation with tradeable permits: training allows the market to account for differences in pollution reduction costs across firms

Answer 2

What is the difference between price regulation (taxes) and quantity regulation? Quantity regulation ignores the fact that plants have different marginal costs of reducing pollution. Pigouvian taxes lead to efficient production by increasing the cost of inputs by the amount of external damage, raising marginal private costs to social marginal costs. Taxes are preferable to quantity regulation, which distributes reductions evenly across plants, because taxes give plants more flexibility in choosing their optimal level of reductions and allow them to choose the efficient level. To summarize: The main advantage of taxation over regulation arises when plants have different pollution reduction costs. How can we determine how much each plant should produce? Regulation often requires that each plant reduce consumption by the same amount, but it would be more efficient if the plants with the lowest costs reduced consumption more. Pigouvian correction taxes that correspond to marginal damage are more efficient

Answer 3

Quantity regulation ignores the fact that plants have different marginal costs of reducing pollution. Pigouvian taxes lead to efficient production by increasing the cost of inputs by the amount of external damage, raising marginal private costs to social marginal costs. Taxes are preferable to quantity regulation, which distributes reductions evenly across plants, because taxes give plants more flexibility in choosing their optimal level of reductions and allow them to choose the efficient level. D=PMB => no altruism / ppl don´t care about environm. MD= SMB S=PMC=SMC The efficient solution is for SMB = SMC and SMC = PMC. * To find an efficient set, the entire SMC curve must be known. * When MD is constant, setting a tax is easier than regulation because one does not need to know the shape of the MC curve. * However, if the marginal damage were unknown or not constant, the government would need to know the shape of both the MC and MD curves to set either the optimal tax or the optimal regulation The efficient solution is to equate, for each facility, the marginal cost of pollution avoidance with the marginal social benefit of that avoidance, i.e., the marginal cost curve of each facility intersects the marginal benefit curve 1. Quantity regulation: gov. knows: 200 ideal => 100 reduction everyone, not efficient because together A+B >200 2. Pigou taxation: bis zu tax bei 100: MAC< paying tax => efficient da delta A+ delta B= delta T

Answer 4

Which of these methods leads to the most efficient regulatory outcomes depends on factors such as the heterogeneity of the firms being regulated, the flexibility associated with quantity regulation, and uncertainty about the costs of reducing externalities. wenn MD kurve steep dann regulation wenn flach dann tax jew dann weniger großer deadweight loss

Answer 5

wenn MD flach => introduction of a tax => samller deadweight loss that with regulation wenn MC steil => regulation => smaller DWL than taxes

Answer 6

when neg. health consequences is the consequences, but not for the smoker but the environment Externaility= if smoker does not bear all the costs raucher, die alle Konsequenzen kennen, können diese Kosten internalisieren Health Care Costs: smoking increases health care costs => externaility? (how is the gov. setting up its health insurance) - Not if the indv. pays for the healthcare OR if insurance premium is adjusted (compensate for expense differences) - Yes if the indv. is in public healthcare and others have to take over the costs. Set Fires: -Not if the indv. burns own stuff and pays for the firebregade - Yes if they burn other ppls stuff OR fire insurance costs aren´t actuarilly adjusted Workplace productivity: - Not If ppl are paid on productivity - Yes if people get paid while they are taking more breaks Death Benefit: - Not if we dont have to pay for them when they are old - Yes because they dont pay taxes anymore once they are dead! OVERALL neg. exte.: ca. 54ct aber tax 1$

Answer 7

Secondhand smoke: Tobacco smoke inhaled by individuals close to the smokers. The costs of secondhand smoke are not easily added to the list of external costs: * There is considerable medical uncertainty about the damage done by secondhand smoke. * Most of the damage from secondhand smoke is delivered to the spouse and children of smokers. aber darüber zu diskutieren wäre teurer (negotiation cost/time/energy) als der tatsächliche Schaden

Answer 8

It is theoretically possible to counteract problems like climate change etc. Externalities occur when the actions of one party affect another party and the first party does not fully compensate (or is compensated by) the other party for those effects. Externalities are the classic answer to the "when" question of public finance: When externalities are present, the market has failed and intervention may be warranted. This leads naturally to the question of the "how" of public finance. There are two solutions here: Price-based measures (taxes and subsidies). Quantity-based measures (regulation). Which of these methods leads to the most efficient regulatory outcomes depends on factors such as the heterogeneity of the firms being regulated, the flexibility associated with quantity regulation, and uncertainty about the costs of reducing externalities

Answer 9

The non-cultivation of tobacco is subsidized by the European Union. * Germany therefore receives subsidies for not growing tobacco plants. * However, the climate in Germany is not at all suitable for tobacco plants. * Antibiotics are very cheap, but there are more and more antibiotic resistant germs. * In the future new antibiotics will be important * Could an intertemporal Pigou subsidy help here? => ja für Forschung antreiben