Bài giảng Environmental economics

Environmental Economics Overview Economics of pollution Economics of Natural Resources Overview From Wikipedia:  Environmental economics is a subfield of economics concerned with environmental issues  Environmental economics is distinguished from Ecological economics that emphasizes the economy as a subsystem of the ecosystem with its focus upon preserving natural capital.[2] One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing "strong" sustainability and rejecting the proposition that natural capital can be substituted by human-made capital.[3] For an overview of international policy relating to environmental economics, see Runnals (2011) Overview Environmental economics is the subset of economics that is concerned with the efficient allocation of environmental resources The environment provides both a direct value as well as raw material intended for economic activity, thus making the environment and the economy interdependent For that reason, the way in which the economy is managed has an impact on the environment which, in turn, affects both welfare and the performance of the economy Overview One of the best known critics of traditional economic thinking about the environment is Herman Daly In his first book, Steady-State Economics, Daly suggested that “enough is best,” arguing that economic growth leads to environmental degradation and inequalities in wealth He asserted that the economy is a subset of our environment, which is finite Therefore his notion of a steady-state economy is one in which there is an optimal level of population and economic activity which leads to sustainability Daly calls for a qualitative improvement in people's lives – development – without perpetual growth Today, many of his ideas are associated with the concept of sustainable development Overview Environmental economics takes into consideration issues such as the conservation and valuation of natural resources, pollution control, waste management and recycling, and the efficient creation of emission standards Economics is an important tool for making decisions about the use, conservation, and protection of natural resources because it provides information about choices people make, the costs and benefits of various proposed measures, and the likely outcome of environmental and other policies Overview • Central to environmental economics is the concept of market failure Market failure means that markets fail to allocate resources efficiently • As stated by Hanley, Shogren, and White (2007) in their textbook Environmental Economics:[5] "A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare A wedge exists between what a private person does given market prices and what society might want him or her to to protect the environment Such a wedge implies wastefulness or economic inefficiency; resources can be reallocated to make at least one person better off without making anyone else worse off." • Common forms of market failure include externalities, non-excludability and non-rivalry Overview • Externality: the basic idea is that an externality exists when a person makes a choice that affects other people that are not accounted for in the market price • For instance, a firm emitting pollution will typically not take into account the costs that its pollution imposes on others As a result, pollution in excess of the 'socially efficient' level may occur • A classic definition influenced by Kenneth Arrow and James Meade is provided by Heller and Starrett (1976), who define an externality as “a situation in which the private economy lacks sufficient incentives to create a potential market in some good and the nonexistence of this market results in losses of Pareto efficiency.”[6] • In economic terminology, externalities are examples of market failures, in which the unfettered market does not lead to an efficient outcome What is efficient? Another way to measure efficiency would be where Profit Maximizing Output is found where P = MC MC P RI C E Market Price QUANTITY What happens when the firms’ marginal cost of production is not equal to the marginal cost to society? Or if the marginal benefit to consumers is not equal to the marginal benefit to society? NEGATIVE EXTERNALITY IN PRODUCTION: Example: Pollution Because of the externality, the cost to society is larger than the cost to producers MSC P RI C E S = MPC to Firm MC is the private cost to the firm Marginal social cost (MSC) is cost to society = MC + externality D = MB to Society Q m ar pt ke im t um Qo QUANTITY The market overproduces and charges a price that is too low POSITIVE EXTERNALITY IN PRODUCTION: Example: Honey MPC to firm P RI C E S = MSC MC is the private cost to the firm Marginal social cost (MSC) is cost to society = MC + externality D = MB to Society Qo Q m pt ar im ke um t QUANTITY The market underproduces and charges a price that is too high NEGATIVE EXTERNALITY IN CONSUMPTION: Example: Cigarettes D gives the private benefit in consumption Marginal social benefit (MSB) = D + externality Overproduction in this case raises MC MC P RI C E MSB Q m ar ke t D = MB to Buyer QUANTITY The market overproduces and charges a price that is too high POSITIVE EXTERNALITY IN CONSUMPTION: Examples: Education, Charities The social value of education is greater than the private value Underproduction in this case lowers MC MC P RI C E D gives the private benefit in consumption Marginal social benefit (MSB) = D + externality MSB D = MB to Buyer Qo Q m pt ar im ke um t QUANTITY The market underproduces and charges a price that is too low SOLUTIONS: 1) Assign property rights => externality internalize (Negotiate if mutually beneficial) 2) Government involvement Tax on negative externality (Pigovian tax) Subsidy for positive externality Permits Pigovian Tax Named after economist, Arthur Pigou •A tax on firms based on the external costs they generate •Internalizes the externality and reimburses society for the external costs •The term “pollution tax” is used when the tax may not be equal to marginal external cost Consider each of the items below: Are they ? Clearly Defined? Exclusive? skateboard gun library book hamburger Garden view Bottled water Lake water Stream water Transferable? Enforceable? Suppose that good X is produced in a perfectly competitive industry Price To produce at socially optimum output, should the government tax or subsidize? Tax Marginal Social Cost 13 12 Marginal Private Cost MR Q1 Q2 Q3 D-MSB Quantity of Good X How much? $5 The production of Good X creates an externality Is this a negative or positive externality? Price Marginal Social Cost 13 12 Negative Marginal Private Cost Why? MR Q1 Q2 Q3 D-MSB Quantity of Good X MSC > MPC The production of Good X creates an externality Price Identify the socially optimum output Marginal Social Cost 13 12 Q2 Marginal Private Cost MSC=MSB MR Why? Q1 Q2 Q3 D-MSB Quantity of Good X Suppose that good X is produced by a profit-maximizing monopoly Identify the unregulated firm’s output Price Marginal Social Cost 13 12 Why? Marginal Private Cost MR Q1 Q1 Q2 Q3 D-MSB Quantity of Good X At Q1, MPC = MR Suppose that good X is produced by a profit-maximizing monopoly Price To produce socially optimum output, should the government tax or subsidize the firm? subsidize Marginal Social Cost 13 12 Marginal Private Cost $3 Why? MR How much will it be? Q1 Q2 Q3 D-MSB Quantity of Good X Optimum Quantity at Q = MR Suppose that good X is produced in a perfectly competitive industry Identify equilibrium output in the absence of regulation Price Q3 Marginal Social Cost 13 12 Marginal Private Cost MR Q1 Q2 Q3 D-MSB Quantity of Good X Why? D=MPC or MSB=MPC [...]... too high Environmental Pollution means changes in environmental components, which are not appropriate to the established environmental standards and cause adverse impacts on human beings and living organisms Crucial Question True or False: The optimal amount of pollution is zero Optimal Pollution $ MAC MD Pollution Market Failure • Problems – Negative externality – Public goods • Tools of environmental. .. non-exclusion and Shared consumption (rival good) vs non-shared consumption (non-rival good) 1 Overview • The key to the environmental economics approach is that there is value from the environment and value from the economic activity…the goal is to balance the economic activity with environmental degradation by taking all costs and benefits into account • Measures of economic value are based on what... that a fish may eat, which then a fisherperson may catch Though that bug is not directly used by the fisherperson, it has an indirect value because of its place in the food chain A large part of environmental economics has been devoted to valuing ‘use’ services 1 Overview • ‘Non-use values,’ also referred to as ‘passive use’ values, are values that are not associated with actual use, or even the option... exclude people from access to an environmental resource for which there is rivalry, market allocation is likely to be inefficient The challenges related with common property and non-exclusion have long been recognized • Hardin's (1968) concept of the tragedy of the commons popularized the challenges involved in non-exclusion and common property "commons" refers to the environmental asset itself, "common... though they may never go there Non-use value is the most difficult type of value to estimate • Total economic value is the sum of all the relevant use and non-use values for a good or service 1 Overview 2 Economics of pollution 2.1 Pollution in economic point of view • Pollution as externality • Costs of pollution • Some level of pollution is acceptable • Occurs where MSB=MSC • Why not zero pollution? •0... a resource (e.g., a fishery) Hardin theorizes that in the absence of restrictions, users of an open-access resource will use it more than if they had to pay for it and had exclusive rights, leading to environmental degradation See, however, Ostrom's (1990) work on how people using real common property resources have worked to establish selfgoverning rules to reduce the risk of the tragedy of the commons.[7]