Environmental Economics - PowerPoint PPT Presentation

alvis
environmental economics n.
Skip this Video
Loading SlideShow in 5 Seconds..
Environmental Economics PowerPoint Presentation
Download Presentation
Environmental Economics

play fullscreen
1 / 20
Download Presentation
Environmental Economics
320 Views
Download Presentation

Environmental Economics

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Environmental Economics

  2. Environmental Economics • Environmental economics air pollution, water quality, toxic substances, solid waste, and global warming (flows) • Natural resource economics natural assets valued for their productive capacity (usually resource stock)

  3. Efficient Market Allocation • Consumers maximize their surplus Demand = Marginal Benefit (MB) • Producers maximize their surplus Supply = Marginal Cost (MC) In equilibrium, P = MB = MC • No further beneficial transactions are possible • Normally, a free market brings us to this point

  4. Same socially optimal outcome for environmental goods? Characteristics of efficient property rights usually not satisfied for environmental goods

  5. Characteristics of property rights • Enforceability – if you buy something, then it will not be taken away from you without permission • Transferability – can be transferred from one individual to another • Exclusivity – all benefits and costs associated with it are received by only one individual at a time

  6. Non-exclusivity - Full costs and benefits borne not just by producers or consumers but also by the public. - Outcome is not socially optimal; there is room for further beneficial transactions. Why?

  7. Private versus Social Costs • Private Costs (internal costs) • Costs borne solely by the individuals who incur them

  8. Private versus Social Costs • Social Costs • The full costs borne by society whenever a resource use occurs • Measured by adding internal to external costs

  9. Private versus Social Costs • Environmental issues occur when social costs exceed private cost

  10. Private versus Social Costs • The cost of polluted air • How would you alter your transportation demand if you had to pay the social cost of driving a car?

  11. Externalities • Are consequences of the use or ownership of a resource that affects someone other than the owner • Can be positive or negative • Result in situations in which a private cost or benefit diverges from a social cost

  12. Reckoning with Full Social Costs

  13. Externalities When social cost > internal cost • Output is excessive because the price is “too low”

  14. Correcting for Externalities • Bargaining and negotiation - Coase theorem • Taxes and subsidies • Direct regulation • Auctioning/Selling pollution rights

  15. Coase Theorem • Regardless of where rights are initially assigned, bargaining will bring about the socially optimal solution • Caveats

  16. Correcting for Externalities • Taxes and subsidies • Measuring damages • Reducing damages to efficient level

  17. Pollution • Question • How much pollution is too much?

  18. The OptimalQuantity of Air Pollution The optimal quantity of pollution occurs where MC = MB

  19. Pollution • Optimal Quantity of Pollution • The level of pollution for which the marginal benefit of one additional unit of clean air just equals the marginal cost of that additional unit of clean air