242topic6文档格式.docx
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242topic6文档格式.docx
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Price,$
S(PrivateandSocialCost)
D(SocialValue)
D(PrivateValue)
Q*QEHistoricHomesandBuildings
Consideralcohol,whichcreatesanegativeexternalityinconsumptionwherethevaluetosocietyislessthanthevaluetoconsumers(becauseofcarwrecks,injuriestoothers,andviolence).
tD(PrivateValue)
D(SocialValue)
QEQ*Alcohol
But,wecanachievetheefficientmarketoutcomebytaxingconsumptionofalcohol.Thisexplainswhyalcoholisoneofthemosthighlytaxedgoods.
Considereducation,whichcreatesapositiveexternalityinconsumption.Thatis,education’svaluetosocietyisgreaterthanthevaluetoprivateconsumers.Moreeducationequateswithabetterinformedpopulace,bettergovernment,betterbehavior,andbettercitizenship.
SD(SocialValue)
Q*QEEducation
Wecaninternalizetheexternalitybysubsidizingeducation.Thisexplainswhyeducationisoneofthemosthighlysubsidizedgoods.
Now,gobacktothefirsttwoexamples.Whatcouldthegovernmentdotointernalizetheexternalitycreatedbytheconsumptionofhistorichomesandbuildings?
Whatcouldthegovernmentdotointernalizetheexternalitycreatedbytheproductionofpaper?
Actually,therearethreeoptions:
TheEnvironmentalProtectionAgency(EPA)could:
1.Prohibitpollutionalltogetherbysettingquotas(q=0).
2.Regulatepaperquantitytobeq=qE.
3.Taxpaperproduction.
Economistspreferthetax.Thisisbecause:
1.Thetaxraisesrevenue.
2.Withregulations,firmshavenoincentivetoreduceQbelowtheregulatedlevel.Withtaxes,factorieshaveincentivestodevelopbetter/cleanertechnologies.
3.Thetaxisjustaseffectivebutmoreefficientthanthequota.Thatis,bothgetequalreductionsinpollution,butthetaxreducespollutionmostefficiently.
Considerthefollowingexample:
InternationalPaper(IP)andLittlePigeonRiverPaperMill(LPRPM)eachdump200tonsofpollutioninrivers.Thecostofreducingaunitofpollutionis$100forIPand$20forLPRPM.Thegovernmentwantstoreducepollutionby200.LetT=50.Then,LPRPMwillreducepollutionby200andIPwillreducepollutionby0.Thetotalcostofpollutionreductionis200(20)=4,000.Ifthegovernmentrequiredeachfirmtoeliminate100unitsofpollution,thenthecostwouldbe100(100)+100(20)=$12,000.
Now,considerpollutionpermits.IPstillproduces200tonsofpollution,andtheircostofclean-uppertonisstill$100.Similarly,LPRPMalsoproduces200tonsofpollution,andthecostofclean-uppertonis$20.Thegovernmentwantstolimitpollutionto200tons.Anequalreductionwouldcost$12,000,asseenabove.WhatifIPwantstoincreasepollutionby100tonsandLPRPMwantstodecreasepollutionby100?
IsthatO.K.?
Itmakesthefirmscollectivelybetteroffandsocialwelfareisenhanced.
Supposethegovernmentissues100pollutionpermits.Itdoesn’tmatterhowthepermitsareallocatedinitially,IPwillbuyall100permitsbecausetheyareworthmoretoIPthantoLPRPM.Thisinternalizespollutionbymakingitcostlytopollute.IPwillpayapriceforthepermitsthatisbetween$100and$20.And,pollutionpermitswillbebetterthanPigoviantaxesifthegovernmentknowshowmuchpollutionitwillallowbutitdoesn’tknowthebesttaxtoset(becausetheydon’tknowwhatthedemandcurvelookslike).
CoaseTheorem:
ifprivatepartiescanbargainwithoutcostovertheallocationofresources,thentheycansolvetheproblemofexternalitiesontheirown.
ConsiderRichardandJaneandSpot.SpotisRichard’sdog,buthebarksandkeepsJaneupatnights.AnegativeexternalityinconsumptioniscreatedonJane,thebystander.
∙IfBRichard>
CJane,thenletRichardkeepthedog.
∙IfBRichard<
CJane,thenRichardshouldgetridofthedog.
First,assumeB=$100andC=$150.JanecouldofferRichard$120togetridofthedog.Then,Richardwouldbewillingtogetridofthedogandbothpartieswouldbebetteroff.IfJaneownedthedog,thenshewouldsimplygetridofit.So,theoutcomedoesn’tdependonpropertyrights.
Second,assumeB=$200andC=$150.Then,Janecouldn’tgiveRichardenoughmoneyforhimtobewillingtogetridofthedog.Thatis,Richardshouldkeepthedog,whichistheefficientoutcome.IfJaneownedthedog,thenRichardwouldgiveheranamountbetween200and150tokeepthedog,whichistheefficientoutcome.Again,propertyrightsdon’tmatterwithrespecttoachievingtheoptimaloutcomeforsociety.
WhentheCoaseTheoremdoesn’twork:
1.Whentransactioncostsarehigh.SupposeRichardandJanespeakdifferentlanguagesandatranslatorcosts$1,000.Then,theyshouldn’tbargainbecauseit’stoocostly.Certainlylawyersandcontractsarecostly.
2.Imperfectinformation(bluffing).LetB=$100andC=$150.ButsupposethatRichardclaimshisbenefitis$140.Also,supposeJaneclaimsthecostisonly$110.Astheyhaggleoverpriceandkeepbluffing,thebarkingpersistsandtheefficientoutcomeisnotattained.
3.(becomesmoredifficult)whenmorepartiesgetinvolved.Supposethereare30neighborsand10otherbarkingdogs.Also,supposeeachneighboreitherhasadifferentvalueforBoradifferentcostofC.
PublicGoodsandCommonResources.
Excludable:
peoplecanbepreventedfromusingthegood.
Rival:
Oneperson’suseofagooddiminishesanother’suse/enjoymentofit.
Rival
Non-Rival
PrivateGoods:
IceCream
NaturalMonopolies:
Utilities
Excludable
Cloths
PhoneService
CongestedTollRoads
UncongestedTollRoads
CommonResources:
fish
PublicGoods:
NationalDefense
Non-Excludable
Environment
Knowledge
CongestedNon-tollRoad
UncongestedNon-tollRoads
PublicGoods
Considerfireworksonthe4thofJuly,whichisapublicgood.ThebenefitperpersonisB=$10.ThecostisC=$1,000.Thereare500people.Shouldtherebeafireworksdisplay?
Whatissociallyoptimal?
Wouldtheprivatemarketresultinafireworksdisplay?
No.Thegovernmentcouldputiton,andincreasetaxesbyt=$2.00.Thefireworksdisplaycreatesapositiveexternalityinconsumption.
Q*QEFireworksDisplay
∙Nationaldefenseisanotherpublicgood:
Costis$272billionor$1,035perperson(1995).
∙Knowledgeisanotherpublicgood.So,theNationalInstitutesofHealthandNationalScienceFoundationsubsidizeknowledgeresearch.
Thegovernmentdecideswhattoprovidewithcost-benefitanalysis.
Consideratrafficlight,whichcosts$10,000.Ifbuilt,engineersestimatethatthechanceofbeingfatallyinjuredinatrafficaccidentwillfallfrom1.6percentto1.1percent.Shouldweputthistrafficlightup?
Ifweplaceinfinitevalueonhumanlives,shouldweputalightoneverycorner?
Whatisthevalueofahumanlife?
CommonResources
Thetragedyofthecommons(medievaltimes):
atownhadcommonlandonwhicheachmemberofthetowngrazedtheirsheep.But,toomanyseepmadethecommonlandbarrenandthetownlostitslivelihood.Commonresourcescreatenegativeexternalitiesinproduction.
T
D
QEQ*Livestock(sheep)
So,thegovernmentcouldsolvethisexternalityby:
∙Taxingland
∙Dividingthelandamongthepheasants,aswasdoneinEngland(privateownershipworksbest).
Thisexplainsthefailureofcommunism–itisrelatedtothetragedyofthecommons.
Othercommonresources:
1.cleanairandwater
2.commonoilpools
3.fish,whales,buffalo,andelephants(ivorytusks).
Whyarebuffaloandelephantsonthevergeofbecomingextinctbutcowsarenot?
Considerthemarketforcows:
Price,$
S(PrivateCostandSocialCost)
Q*=QECows
Noexternalityherebecausethereisprivateownership.
QEQ*Buffalo/Elephants
Marketoutputistoohigh–andbuffalo/elephantsarebecomingextinct.
WhatareAfricangovernmentsdoingaboutthis?
∙InKenya,Tanzania,Ugandaitisillegaltokillelephants
∙InBotswana,Malawi,Nambia,andZimbabewe,elephantshavebeenprivatizedbymakingownershipofelephantsaccordingtotheowneroftheland.
ProblemSet6:
1.Depictthesupplyandde
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