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9 The Problem of Market Failure* ALAN RANDALL A lan R an d a ll is P ro fesso r o f A g ric u ltu ral E conom ics a t O h io S tate U niversity in C o lum bus The concept o f m ark et failure seems entrenched in the conventional wis dom o f the econom ics discipline, if the conventional w isdom is most clearly revealed by w hat respected econom ists tell u n d erg d u ate students and governm ent policy m akers T he typical treatm en t proceeds as follows: the concept o f P areto-optim ality is explained; the idea th at com petitive m arkets tend to allocate resources efficiently is developed; the n o tion that, u n d er certain conditions prevalent in the real w orld, m arkets fail to per form efficiently is introduced; an d th e search for am eliorative measures, involving governm ent as law -m aker, tax collector, a n d /o r regulator, is u n d ertaken T his ap p ro ach pervades econom ic discussions o f public fi nance, the provision o f collective goods, m anagem ent o f n a tu l re sources and environm ental q u a lity "T he Problem o f M arket Failure,” by A lan R andall, from Natural Resources Journal, v 23, pp 131-48 R eprinted by permission ‘ T h is p ap er w a s d fted w h ile th e a u th o r w a s v isitin g a t th e U n iv e r sity o f N e w E n glan d A r m id a le N S W A u stra lia A n earlier v er sio n w a s p resen ted in th e 1980 R e u b e n A G u sta v so n lecture series a t th e U n iv e r sity o f C h ic a g o 'A fe w e x a m p le s fr o m th e en v ir o n m e n ta l q u a lity area sh o u ld suffice: S ee th e ed ito r s' in tro d u c tio n to R D o r fm a n a n d N D o r fm a n E co n o m ics o f th e E n viron m en t S e le c te d R e a d in g s (1 7 ): R u ff "The E co n o m ic C o m m o n S en se o f P ollu tio n ” 19 Pub I n te r e s t (1 ): D a v is a n d K arm en " E x tern a lities In fo rm a tio n , a n d A lte r n a tiv e C o lle c tiv e A ctio n Số hóa bởi Trung tâm Học liệu – ĐH TN The P P B http://www.lrc-tnu.edu.vn The conventional wisdom , alm ost by definition, is an am algam o f new ideas from prior seasons and persistent ideas from earlier times Since 1960, a vocal group (but still perhaps a m inority) o f econom ists w ho reject the m arket failure approach has arisen T his g roup’s critique has led the better econom ists who use the m arket failure paradigm tow ard a sharper, m ore precise and m ore sophisticated analysis.3 Nevertheless, considerable confusion rem ains concerning the natu re o f m arket failure, its significance in theory and as an observable phenom enon, and the ap p ro p riate policy response to it C o ntem porary discussions o f m arket failure usually list four distinct phenom ena, although two or m ore o f these m ay occur together and, if so, their effects are m utually reinforcing T he phenom ena are externality, “ public goods,” “ com m on p roperty resources," and m onopoly T o fur ther com plicate m atters, two kinds o f m onopoly are recognized: (1) m ar ket co n centration in the extrem e, and (2) “ natu ral m onopoly,” which is treated as endem ic to decreasing-cost industries T his paper focuses on externality, “ public g o o d s.” “ com m on property resources.” and “ natural m onopoly.” A m assive literature on m arket concentration already exists; thus this paper will n ot explore th at topic Section II argues th at "com m on property resources" and "public goods” are confusing term s which refer to confused concepts T h at section offers an alternative and m ore precise term inology, based on notions of nonexclusiveness an d nonrivalry Section III discusses externality in a post-C oasian context an d exam ines the “ C oase T heorem " in its "w eak ” and “ stro n g " versions T he discussion shows th at the strong version is a useful pedagogical device w ith little policy relevance, while the weak ver sion is seen as a general theorem on the existence o f m arkets, rath er than a theorem central to environm ental econom ics T he paper goes on to exam ine the conditions under which an external ity m ay persist and finds that, in general, externality can n o t persist Inef ficiency, however, m ay surely persist, b ut for reasons m ore closely related to nonexclusiveness an d nonrivalry th an to externality E xternality is, then, a vacuous an d entirely unhelpful term , and can be replaced by the m ore general term inefficiency with no loss o f content O n the o th er h and, an intrusion or invasion m ay occur— or, in the term inology this article seeks to elim inate, “ an externality m ay arise," resulting in (1) a non-consensual change in the p ro d u ct mix o f society an d (2) a welfare shock for som e A ssum ing, as m ost au th o rs (including C oase S y s te m 67 (1969); an d A F re em a n R H a v em a n an d A K n e ese, The E co n o m ics o f E n viron m e n ta l P o lic y (1 ) 2T h e sem in a l article is C o a s e "T he P r o b le m o f S o c ia l C o s t," J.L & E (1 ) H o w ev e r, o th e r s m a k e a m o r e v eh em en t a tta ck o n th e m ark et failu re p arad igm : fo r ex a m p le , D e m s e tz , " In form ation a n d E fficien cy: A n o th er V ie w p o in t," 12 J L & Econ (1 9 ) i n c l u d i n g m o s t o f th o s e cite d a b o v e , n o te Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn and B uchanan) do, th at citizens m ay appropriately use the pow ers of governm ent to deal w ith these kinds o f events, w hat should be done? In the literature th at addresses this question, one can identify tw o postC oasian traditions: a C oase-B uchanan trad itio n and a C o a se-P o sn er tra dition Section IV evaluates these tw o traditions, develops an argument which finds m ore m erit in the C oase-B u ch an an trad itio n , an d sketches som e in stitutional reform s in th a t tradition Section V presents concluding com m ents th at suggest w hat, if anything, can be salvaged from the "m ark et failure" baggage o f the econom ist’s conventional wisdom II F o r the current generation o f econom ists, G o rd o n popularized the term “ com m on p roperty resource.” T he analysis o f G o rd o n and m ost subse q u en t au th o rs has focused on the unow ned resource, res nullius, and is basically correct in th at context T he problem is th a t rights to the resource are nonexclusive C onsiderable confusion arises because the now sta n d a rd “ common pro p erty resource” analysis is n ot applicable to res com m unis, property held in c o m m o n W hile it is unlikely th a t res c o m m u n is rights will be strictly n o n a tte n u a te d ,6 m any o f the solutions proposed for “ common pro p erty resources" (i.e., res nullius) problem s actually fall w ithin the res co m m u n is classification O w nership is vested in som e kind o f collective and rules o f access (usually exclusive an d enforceable to a considerable degree, an d often transferable under stated conditions) are established to minim ize abuse o f the resource an d overinvestm ent o f factors o f produc tion in its exploitation O ne m ay ask why the res nullius o r non-exclusiveness, problem is so often handled in basically free enterprise econom ies by establishing some form o f res c o m m u n is th e r th an n o n atten u ated p roperty rights The answ er m ay lie in trad itio n al beliefs th a t private ow nership is inappropri ate fo r certain kinds o f resources H ow ever, the a u th o r suspects th at it lies m ore often in the high cost o f exclusion F o r exam ple, for m any species of com m ercial fish, the costs o f specifying an d enforcing exclusive property 4G o r d o n “ The E co n o m ic T h eo ry o f a C o m m o n -P r o p e rty R e so u rc e : The F ish ery J Pol E 124 (1 ) C iria c y -W a n tru p & B ish o p " 'C om m on p r o p e r ty ' a s a C o n c ep t in N a tu r a l R e so u rc e s Pol ic y " 15 N a t R es J 713 (1975) 6S N S C h e u n g d efin es n o n a tte n u a te d righ ts a s (1) ex c lu siv e (2 ) tr a n sfera b le (3 ) en forced a n d (4 ) in n o w a y in c o n s is te n t w ith th e m argin al c o n d itio n s fo r P a r e to o p tim a lity S ee C h eu n g "The S tr u c tu r e o f a C o n tr a c t a n d th e T h eory o f a N o n e x c lu s iv e R eso u rce 13 J L & Econ 49 ( 1970) Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn rights in individual fish are prohibitive, in th at they exceed any possible gains which could arise from the voluntary exchange thus perm itted Sim ilar difficulties m ay apply to individual units o f am bient air and w ater, and oil an d groundw ater in large pools In these cases, transactions costs (broadly defined)7 are n ot merely so large as to prohibit the kinds o f trade which would lead to Pareto-efficiency, b ut so large as to prohibit the establishm ent o f n o n atten u ated property rights, a necessary precondition for such trade F urther, it is not “ the large num bers problem ,” the reason usually offered to explain high transactions costs, b ut some peculiarities in the physical nature o f the resource itself th at are to b lam e.8 F or example, fencing the open sea is technologically m ore dem anding and thus vastly m ore expensive than fencing the open range “ Public goods” (or “collective goods” ) is an o th er term which generates confusion In m ost definitions, a t least one o f two phenom ena is involved: nonexclusiveness, discussed above, and nonrivalry T he latter refers to Sam uelson’s n o tion o f a good which m ay be enjoyed (“consum ed” ) by some w ithout dim inution o f the am ount effectively available for o th e rs.9 C onfusion arises as to w hether both o f these phenom ena are necessary to m ake a good “ public” or, if one is enough, which o n e ? 10 However, nonexclusiveness an d nonrivalry m ay occur together or separately, and the econom ic analyses o f the two phenom ena are quite different A ccord ingly, a focus on questions o f exclusiveness and rivalry perm its precise analysis, while the term “ public g o o d ” only introduces confusion D ebate ab o u t w hat is required for a good to be called “ public” seems n ot only unhelpful b ut m isdirected T he econom ics profession could abolish the term s “ com m on property resources,” and "public g o ods” with no loss o f inform ation an d consider able gain in clarity T he term s nonexclusiveness and nonrivalry represent vast im provem ents, useful in all contexts and relevant for both goods and resources F o r the “ non-pure public g o o d ,” the term congestible good is entirely adequate It describes a good which is nonrival for som e num ber 7A s for e x a m p le, b y C o a s e n o te 2, a t 6; C r o ck er, " E x tern a lities, P r o p e r ty R ig h ts a n d T n sa ctio n s C o sts: A n E m p ir ic a l S tu d y , 14 J L & E , at -4 (1971); a n d D a h lm a n , "The P ro b lem o f E x te r n a lity , ” 22 J L & E 141, 144 (1 9 ) 8‘‘T h e L arge N u m b er s P ro b lem ," a lo n e , w ill n ever c a u se p ro h ib itiv e tr a n sa c tio n s c o s ts T h e m arket fo r b read , w ith m yriad b u yers an d sellers, w o r k s a s w ell as an y, a n d m u ch b etter th an th e m arket fo r c le a r air w h ich h as a sim ila r n u m b er o f p o te n tia l b u yers an d sellers 9S a m u elso n , "T he P u r e T h eo ry o f P u b lic E x p e n d itu r e , ” 36 R ev Econ & S ta t 38 (1 ) 10S a m u elso n , ibid., fo c u s e d o n n o n r iv a lr y , b u t a ls o m a d e m e n tio n o f th e fr ee-rid er p ro b le m , a m a n ife sta tio n o f n o n e x c lu siv e n e ss D a v is an d W h in sto n , "On th e D is tin c tio n B etw een P r iv a te a n d P u b lic G o o d s, " 57 A m E R ev (1 ) fo c u s e d o n n o n r iv a lr y , an d d isc u sse d th e e c o n o m ic p ro p ertie s o f n o n e x c lu s iv e p u b lic g o o d s , ex c lu siv e p u b lic g o o d s , an d n o n -p u re (i.e c o n g e s tib le ) p u b lic g o o d s , b o th e x c lu siv e a n d n o n e x c lu siv e H ea d " P ublic G o o d s : The P o la r C a s e R e c o n s id e r e d 53 E R ec 2 (1 7 ), a rgu es th at a " p u b lic g o o d ” m u st h a v e b o th ch a c ter istics, n o n e x clu siv en ess an d n on rivalry Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn o f users, while rivalry sets in as th at num ber is increased an d becomes intense as the num ber o f users approaches the capacity co n strain t For such goods, initial capital costs tend to be high, while the m arginal cost of adding an additional user rem ains low until the capacity constraint is ap proached T hus, average cost per user steadily declines until the capac ity co n straint is approached Exam ples include alm ost all services pro vided in a confined space, and all services provided in capital-intensive delivery system s o f constrained capacity, e.g roads, bridges, railbeds canals, transm ission lines an d pipelines T he p oint o f these last observations is th at the so-called "natural mo nop o ly " problem can be adequately analyzed under the rubric o f congestible goods W hat are the econom ic consequences o f nonrivalry? In principle, the efficient am o u n t o f nonrival good m ay be provided O ne m ay express individual preferences across the range o f possible levels o f provision and identify individual total an d m arginal “ willingness to pay" (WTP) schedules T hese schedules are aggregated vertically, across individuals T he efficient level o f provision is identified (in the S am u elso n 11 solution) as th a t level at which aggregate m arginal W T P ju st equals the marginal cost o f provision, given th at aggregate total W T P exceeds to tal cost The problem , for efficiency, is th at no non-discrim inatory pricing scheme can achieve this solution A price high enough to generate revenue covering costs o f provision w ould inefficiently exclude some potential users who value the good positively and w ould result in provision o f less than the efficient am o u n t o f the good As D avis and W h in s to n 12 point out such a solution would n ot be Pareto-efficient b ut m ay be a second-best solution W ith an adequate exclusionary device, the private sector could provide nonrival goods in this m anner In the absence o f exclusion, the best hope is fo r public sector provision o f the efficient q uantity, but financing proce dures p erm itting this outcom e w ould necessarily violate the pricing condi tions fo r Pareto-efficiency D iscrim inatory pricing w ould perm it the L indahl solution, which pro vides the efficient q u an tity (i.e., the sam e q u an tity as the Sam uelson solu tion) at Pareto-efficient prices T he L indahl-price is, in general, different for each individual Private (or public) sector provision in a Pareto-effi cient m anner would therefore require n o t ju st exclusion o f non-payers, but exclusion o f each individual w ho does n ot pay his individual Lindahlprice T his latter kind o f exclusion is m uch m ore technologically dem and ing th an the exclusion adeq u ate for o rdinary (i.e., rival) goods, an d is required only in the case o f nonrival goods F o r the w ant o f a better name, let us call it hyperexclusion N ow , a classification system based on concepts o f exclusion and ri11S a m u e ls o n a b o v e , n o te at 87 389 '-D a v id an d W h in s to n a b o v e , n o te 10 a t 363 Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn T A B L E A Classification o f Goods Based on Concepts of Rivalry and Exclusion Nonrival Congestible Rival NON EXCLUSIVE EXCLUSIVE HYPEREXCLUSIVE valry— and designed to replace the confusing and often m isleading notions o f “ com m on property resources” and “ public goods” —can be spelled out Conceptually, all o f the nine types o f goods identified in T able can exist Exam ples o f types through occur quite frequently T he econom ic characteristics o f each type are sum m arized below E ach o f the nine types has characteristics w hich distinguish it from the others and, in each case, the econom ic analysis o f the possibilities for efficient pricing and the provision o f efficient quantities have distinguishing features G o o d s o f types th ro u g h can n o t be reliably provided by the private sector, o r by the public sector financing them with user charges Public sector provision, financed from general revenues, is possible A n all-wise public sector could, in concept, provide goods o f type in efficient q u an ti ties but not, o f course, at efficient prices F o r types and 3, the lack o f exclusion would result in overutilization; thus, both price and quantity aspects o f Pareto-efficiency would be violated T here are subtle b ut im por tant differences in the analyses ap p ro p riate for determ ining the efficient q u antity in each case G o o d s o f types and could be provided by the private sector, or by the public sector, financing them with user charges Second-best solutions m ay be achieved, b ut Pareto-efficiency is unattainable D avis and W hins to n 13 speculate on the nature o f the second-best solutions for each o f these tw o distinct types o f goods T ype 6, the “ private g o ods” which neoclassical m icroeconom ic theory treats as typical, m ay be provided by the private sector in a Pareto-efficient m anner, if all the conditions for Pareto-efficiency are satisfied Type represents nonrival goods provided, by the private or public sector, a t L indahl-prices Pareto-efficiency is achieved under these condi tions G o o d s o f types an d m ay, in principle, be provided in efficient quantities by private o r public sector In these cases, hyperexclusion re quires, am ong o th er things, th at the provider enjoy m onopoly status Such a perfectly discrim inating m onopolist w ould extract, via L indahl-pricing, all o f the econom ic surplus which in the case o f typical private goods (type Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn 6) is d iv id e d a m o n g p ro d u c e rs a n d c o n su m e rs P u re p ro fits m a y th e re fo re a rise, in v io la tio n o f th e c o n d itio n s fo r P areto -efficiency N o te th a t Pareto-efficient provision th ro u g h the m arket is conceivable only for goods o f types an d 7, and th at in case 7, hyperexclusion— which rem ains technologically elusive— is required W hat are the prospects o f shifting goods am ong the categories defined in T able 1? Since the three rivalry-related concepts refer to fundam ental physical characteristics o f the goods involved, there are very few prospects o f shifting goods vertically w ithout transform ing the n a tu re o f the good itself T he exclusion-related concepts represent the interaction o f institutional and technological factors T o achieve exclusion requires a structure of laws and institutions to establish an d enforce exclusive p roperty rights, but the effectiveness o f enforcem ent— an d thus o f the rights themselves— d epends upon the available technology o f exclusion and the costs of im plem enting th a t technology relative to the gains from trad e thereby perm itted F o r som e goods— e.g., grocery item s, consum er durables, resi dences, and farm lan d — these costs are tolerably low, and enterprise-ori ented societies have generally shifted such goods horizontally from the nonexclusive to the exclusive categories F o r o th er goods— e.g., fish in the ocean an d am bient air— strict exclusion is technologically difficult and costly relative to the potential gains T herefore, one finds, at best, res communis types o f rules o f access which are surely atten u ated , but which m ay perm it som e im provem ents over the res nullius situation F o r reference, we identify the place o f the term s “ com m on property reso u rce" an d “ public g o o d ” in the nine category classification o f Table “ C om m on property resource” is usually the m isnom er applied to fac tors o f production in category 3, b u t on occasion has also been applied to item s in categories an d “ Public g o o d ” has been applied, by various au th o rs, to com m odities in som e o r all o f categories 1, 4, and Similarly, “ n o n -p u re public g o o d ” has been applied to som e or all o f categories 2, 5, an d H ere, we rest o u r case for substituting the classification o f Table fo r the custom ary, b ut im precise an d confusing, term inology o f "com m on p roperty resources” an d “ public g o o d s.” W hat nonexclusiveness an d nonrivalry im ply a b o u t m ark et failure? F irst, w hat does m ark et failure m ean? Som e have defined it as the failure o f m arkets to exist H ow ever, it has long been clear th a t the non-existence o f certain m arkets is a ratio n al m ark et response to transactions costs in excess o f potential gains from tr a d e 14 If m arket failure m eans inefficiency, it m u st refer in concept to goods in all categories except an d and in practice to all goods H ow ever, such a concept is not helpful, as it identifies m ark et failure in cases w here o th er institutional devices will also predicta l4D e m s e lz , "T he E x ch a n g e a n d E n fo rcem en t o f P r o p e r ty R ig h ts " J L & E Số hóa bởi Trung tâm Học liệu – ĐH TN 11 < 1964) http://www.lrc-tnu.edu.vn bly fail, to greater o r lesser degrees If m arket failure m eans the failure of m arkets to as well as som e o th er institutional device(s), the concept com es to grief on the absence o f unanim ity ab o u t w hat is m eant by “ to as well.” Som e progress can be m ade if we confine ourselves to one o f the several aspects o f efficiency: the provision o f goods, services and am enities in efficient quantities F o r nonrival goods the possibility exists th at gov ernm ent, by direct provision, m ay outperform the m arket W here nonex clusiveness is the problem , citizens working through governm ent m ay institute changes in p roperty rights which cause the m arket to provide m ore nearly the efficient am ount But these im provem ents are possibilities, n o t certainties, and their validity m ust be dem onstrated on a case-by-case basis recognizing all the costs and im perfections o f both m arket and governm ental institutions, rath er than established by m ere appeal to m ar ket failure notions Finally, the focus on quantity provided w ithout refer ence to pricing and the division o f surpluses am ong producers an d be tween producers and consum ers will be unsatisfactory to some Ill E xternality is usually defined as a situation in which the utility o f an affected party is influenced by a vector o f activities under his control but also by one or m ore activities under the control o f an o th er (or others) Since the w ritings o f C o a s e 15 and B uchanan and S tu b b leb in e,16 m ost au th o rs have focused on P areto-relevant externalities: those which are inefficient M any categories o f interactions which satisfy the definition of externality are efficiently handled in m arkets, an d no possibility o f P aretorelevance exists for these categories when m arkets function well F o r other kinds o f interactions— air an d w ater pollution are com m only cited exam ples— intense debate has occurred ab o u t w hether P areto-relevant exter nality m ay persist It is generally accepted th at som e externality— e.g., som e positive level o f air or w ater pollution m ay persist even in a Paretoefficient situation T he C oase T heorem com es in two versions, a strong and a weak ver sion T he strong version states: given a structure o f p roperty rights which is com pletely specified an d exclusive, costlessly transferable, an d costlessly enforced, voluntary exchange will elim inate all P areto-relevant external ity, and the resultant allocation o f resources will be independent o f the specific assignm ent o f p roperty rights T his theorem relies upon a num ber o f restrictive assum ptions, notably th at incom e effects are zero, nonatl5C o a s e , a b o v e , n o te lhB u ch an an an d S tu b b leb in e " E x te r n a lity ," 29 E co n o m ic a 371 (1962) Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn ten u ated p roperty rights m ay be costlessly established and m aintained, and m arkets in goods and rights are frictionless.17 F o r these reasons, the stro n g theorem m ust be regarded m ore as a pedagogical device than a source o f policy prescriptions T he weak version o f the C oase T heorem casts m uch m ore light on the problem o f externality It states: given a structure o f p ro p erty rights consistent w ith Pareto-efficiency, voluntary exchange will eliminate P areto-relevant externality an d thereby establish an efficient allocation of resources T he weak version m ay, o f course, be developed from the strong by relaxing the above-m entioned assum ptions O u r u n derstanding o f the concepts o f externality and P areto-relevance is enhanced by working th ro u g h this process U nder the strong theorem assum ptions, for any initial assignm ent of rights, v oluntary exchange results in the sam e equilibrium level o f abate m ent o f an annoyance (i.e external diseconom y) Efficiency is achieved, the allocative dim ensions o f the efficient solution are unaffected by the specific assignm ent o f rights, an d — by definition— the P areto-relevant ex ternality is elim inated while som e P areto-irrelevant (and therefore effi cient) annoyance rem ains Recognizing incom e effects (and assum ing them to be positive), the specific assignm ent o f rights does m ake a difference W ith rights favoring the receptor, the equilibrium solution involves m ore abatem ent In other w ords, when rights favor the receptor, m ore o f the externality is Pareto relevant th an when rights favor the em itter Positive transactions costs have a sim ilar effect, and the difference betw een the equilibrium levels of abatem ent under opposite assignm ents o f rights grow s as the level of tran sactions costs increases W ith tran sactio n s costs sufficiently large to preclude trade, the resource allocation im plied by the initial rights struc ture is retained as the equilibrium solution U nder receptor rights, no externality rem ains; under em itter rights, no abatem ent occurs Yet, as sum ing the transactions industry itself is efficient, each o f these solutions is efficient given the assignm ent o f rights w hich underlie it T his is the im p o rt o f the w eak C oase T heorem U nder receptor rights, the externality is P areto-relevant in its entirety; under em itter rights, none o f it is Pareto relevant G iven the m agnitude o f tran sactio n s costs (and, usually to a lesser extent, incom e effects18), the initial assignm ent o f rights determ ines w hat is P areto-relevant l7C o a s e , a b o v e , n o te r e co g n izes th e cru cial ro le o f tr a n sa c tio n s c o s t s in th e str o n g th eorem , an d d e v o te s c o n sid e r a b le s p a ce to ex p lo r in g its im p lic a tio n s l8F o r s o m e fo r m u la e p erm ittin g r ig o r o u s c a lc u la tio n o f th e size o f in c o m e effec ts, se e W illig " C on su m er S u rp lu s W ith ou t A p o lo g y ” 66 A m Econ R ev 587 (1976); a n d R a n d a ll a n d S toll " C on su m er 's S u rplu s in C o m m o d ity S p a ce, " 70 A m E R e v 4 (1 ) F o r m a n y ord i nary s itu a tio n s , in c o m e effec ts are q u ite sm all H o w ev e r, w h ere righ ts in v o lv in g in com eela s tic g o o d s an d a m e n itie s w h ich co m m a n d a large sh are o f th e in d iv id u a l's b u d g e t are co n ce rn ed , in c o m e effects are em p iric a lly im p ortan t Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn W hat, then, is Pareto-relevance? It is a general term , with no special relevance to externality, m eaning the existence o f unrealized gains from trade Similarly, in an econom y w ith a rights structure conducive to trade, Pareto-irrelevance describes any situation— w ithout reference to its desir ability, or lack thereof, in norm ative term s— which can n o t be changed th rough voluntary exchange In such an econom y, the hunger o f the undernourished is Pareto-irrelevant W ith respect to an external diseconom y, the specific assignm ent o f rights does two things F irst, it determ ines the directional flow o f pay m ents (if any) resulting from trade (if any) In o ther w ords, it determ ines which p arty faces a "p ay or suffer" situation Second, given the m agnitude o f transactions costs an d incom e effects, the assignm ent o f rights d eter m ines how m uch o f the annoyance persists a t the com pletion o f trade, i.e., how m uch o f it is ipso fa c to declared P areto-irrelevant A ssum ing incom e effects to be small, consider transactions costs W ith low transactions costs, the initial assignm ent o f rights has a relatively small influence on how m uch o f the annoyance persists W ith high transactions costs the influence is large W ith prohibitive transactions costs, rights determ ine w hether the annoyance persists in its entirety or is elim inated completely N ote th at, for any initial assignm ent o f rights, both parties, em itter and receptor, w ould prefer— given a choice— the low transactions costs situa tion in which som e b ut n ot all o f the annoyance persists U nder w hat circum stances, given an externality which results in signif icant annoyance, would transactions costs be high o r prohibitive? Only two possibilities exist O ne institutions are designed to impede trade in rights T he discussion thus far has through its focus on no n atten u ated structures o f rights, elim inated this possibility by assum ption T w o, exclu sion and transfer are expensive for technological reasons Som ething ab o u t the physical n atu re o f the good itself a n d /o r the technical processes required to delineate an d enforce exclusive property rights therein renders exclusion expensive, thus m aking nonexclusiveness the norm for th at kind o f good O ne p articu lar aspect o f the physical nature o f som e goods is nonrivalry which m akes hyperexclusion, n ot ju st exclusion, necessary for Pareto-efficiency The im port o f all this is th at, in econom ies which m aintain institutions conducive to trad e an d efficiency, those things called externality can n o t persist in inefficient quantities unless accom panied by nonexclusiveness a n d /o r nonrivalry E xternality, by itself, is sim ply n ot persistent In this sense, as C h e u n g 19 an d D a h lm a n 20 have already pointed out, externality is not a useful term E xternality can refer only to tem porary disequilibria indistinguishable from any o th er form o f inefficiency which results from failure to realize potential gains from trade l9C h eu n g , a b o v e , n o te 20D a h lm a n a b o v e , n o te Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn the facility so th at unannounced random sam pling o f the particular resi dues m ay be undertaken T hus, determ ining generation o f raw waste loads is pro bably only slightly less difficult as a m o nitoring problem than mea suring unapproved disposal directly T hus we find ourselves talking moni to rin g again In short, the m ajor advantage o f the positive incentive is th at it encour ages the firm o r facility to m eet the condition s im posed by the agency, be these m atters o f disposal place, tim ing, o r form , o r all three, and reduces the agency’s need to m easure w hat is being accom plished inside the estab lishm ent itself T here are, how ever, potential disadvantages as well The tw o m ost serious seem to be: • T h at the paym ents will be a d rain on the treasury, and therefore taxes will have to be increased som ew here in the system to offset the incentive paym ents • T h at it m ay be difficult to arrive at an incentive level th at is high enough to encourage the desired actions b ut n ot so high as to encour age w hat m ight be called counterfeiting o f wastes T he latter problem in its starkest form would involve a firm manufac tu ring a com pound sim ply in o rder to claim the rew ard for turning it into an ap p roved disposal site B ut less drastic possibilities exist, such as dilut ing a mix th at contains the waste so th at, w ithout m easurem ent, the agency m ay be duped into paying for an am o u n t larger th an th at actually disposed of T hese problem s will be discussed again below , b ut for now let us consider the m atter o f revenue Because positive incentives, by themselves, m ean a net increase in pub lic spending, m any, and I include m yself in this group, have been drawn to deposit-refund (D R ) system s.30 M ost people have had som e experience w ith such an arrangem ent F o r exam ple, in m ost o f the New England states today, w hen you buy a bottle o r can o f soda o r beer you pay a deposit at the store W hen th at bottle is returned to a designated collecting facility, which will p robably itself be a store b u t need n ot be the same one or even one in the sam e state, the person returning it collects the deposit as a refund, so the system creates no net call on the treasury T he idea of a deposit-refund for toxic w astes is often supported by appeals to experi ence o f various U.S states w ith bottle an d alum inum can D R s, o f Sweden an d N orw ay w ith D R s for autom obile hulks, and o f W est G erm any with a lubricating oil tax an d a w aste oil rebate system 31 T he bottle, can, an d au to hulk system s seem quite to the point When a purchase is m ade, a deposit is added to the price W hen the object in 10Peter B o h m D e p o s it-R e fu n d S y s te m s (1 ) (fo r a d is c u s s io n o f D R sy ste m s) lF o r a d escr ip tio n o f th e latter tw o sy ste m s, see g en er a lly O r g a n iz a tio n for E conom ic C o o p e r a tio n an d D e v e lo p m e n t E co n o m ic In stru m en ts in S o lid W a s te M a n a g e m e n t (1981) Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn question is returned to a designated place a refund is paid T he place o f return for bottles m ay be any store or m ay be a specific, designated receiving store; for au to hulks, a dism antler and press The G erm an lubricating oil system is som ew hat different In th at sys tem a tax is charged on all lubricating oil purchases T he proceeds go to a reserve fund from which aid is paid to firms th at engage in collection and non-polluting disposal o f waste oil from various uses T he am ount o f aid depends on the fate o f the oil, w hether it is burned or cleaned up for recycling The aid is designed to m ake up the difference betw een the firm s’ costs and their proceeds T able provides a sum m ary o f existing (in 1984) and proposed “ p ro d u ct charges,” including the D R systems discussed above So far so good T he available com m entaries have positive tones, though no d ata on the before an d after situations are offered.32 T here are other advantages o f the D R system s as well— for example, th at they can provide decentralized incentives to achieve the desired e n d 33 T h at is, the refund on a bottle goes to the person who returns it, regardless o f w ho purchased it Thus, some people m ay spend time collecting littered bottles— even, conceivably, collecting au to hulks—as an incom e supplem ent A pplied to toxic wastes, this m ight m ean th at, w ith some specialized equipm ent, scavenging firms could pick up discarded drum s and tu rn them in, either determ ining their contents or letting the collection center so O f course, that feature would n ot help if the toxic has been dispersed, as som e have been, by spraying along rural roads, for example A n atural question a t this point is: w hat are the real chances that positive incentives, perhaps in the form o f D R s, could be successfully applied to h azard o u s wastes? F irst, stressing the positive rew ard aspect rather than the self-financing via deposit, consider som e o f the attributes o f bottles and a u to hulks th at can be presum ed to contribute to the success o f these systems M ost im p o rtan t, au to hulks and bottles are easy to identify N o sophisticated o r lengthy chem ical tests are necessary T here is no danger th at a bicycle fram e could be fraudulently passed off as an au to hulk or th at a soup can could be a beverage bottle Second, the au to hulk, at least, is m ost unlikely to be fabricated ju st to get the refund T h at is there is little risk o f finding th at an au to hulk producing industry has been created an d is producing au to hulks purely for refunds o r th at car thefts would occur to produce hulks rath er th an drivable cars W ith b o t tles there m ay be a fine line betw een a deposit high enough to pull in returns but n ot so high as to encourage counterfeiting A final attrib u te w orth m entioning is th at it takes effort to destroy and dissipate hulks and bottles T he original object can survive som e rough handling an d still exist to be returned 12E om ic In stru m en ts in S o lid H a s te M a n a g em en t, a b o v e , n o te 31, a t —15 an d an n e x es u B oh m , a b o v e , n o te a t Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn TA BLE Product Charges and Deposit-Refund System s in Europe* PRO PO SED C U R R EN T FRANCE Product charges are not currently used in France None For a short period (1979-80) there was a charge on lubricants used to subsidize the re-refining industry This was later replaced by a system of regulatory controls designed to provide regenerators with waste oil at low cost GERMANY Waste oil charge A levy is raised on all lubricants put on the market and the proceeds of this levy are used to provide financial assistance to waste oil collectors in order to facilitate recovery There are recurring proposals for a charge on beverage containers The suggestion of its introduction has been used to encourage industry to operate container recovery and re-use systems This levy (and the subsidy scheme) is to be phased out gradually up to 1990 The scheme has helped to set up an established collection and recovery industry, and oil prices are now sufficiently high that the value of waste oil itself provides an incentive to recycling NORWAY Charge on non-refundable beer and mineral water containers Charge on heavy metal batteries Deposit-refund system on automobile bodies Deposit paid as part of import duty on new cars (In 1979 this amounted to 1% of sales price) Refund paid at any of 100 collection points.h Charge on chlorofluorocarbons SWEDEN Charge on beverage containers This was introduced in 1973, and intended to reduce the use of non-returnable beverage containers This charge is to be discontinued and replaced by a more comprehensive deposit system Số hóa bởi Trung tâm Học liệu – ĐH TN The beverage container charge will be replaced by a deposit system to include cans as well as bottles The scope of the deposit system will be larger than that of the container charges and deposits will be set at SKr 0.25 rather than SKr 0.10 which was the charge made http://www.lrc-tnu.edu.vn Economic Incentives in the Management of Hazardous Wastes T A B L E (continued) CU R R EN T PROPOSED Charge on fertilizers A charge, which adds about 10% to the price, is levied on fertilizers based on nitrogen and phosphorus content The intention of the charge is to encourage reduced fertilizer use This charge is to be gradually increased over the next few years to 25% of fertilizer prices, and further increases to 50% in 1990 are under discussion Vehicle scrapping deposits Since 1976 a charge of Skr 250 has been made on sales of new cars When a car is delivered to an authorized scrap dealer, the final owner receivers SKr 300 and all liability to car tax comes to an end The funds generated will be used to finance a collection and recycling system intended to recycle 75% of aluminum cans Manufacturers have also guaranteed to maintain systems for recycling bottles Charge on heavy metal batteries A charge of S kr 0.5 will be paid on each battery imported Charge revenue will be paid to a collection and recycling company who will in turn offer an incentive to consumers to return used batteries ‘ A dapted from tab le (a ) in E n v iro n m e n ta l R eso u r ces L td , “ C o s t E ffectiveness: E xp erien ce and T rends" prepared fo r th e g o v e r n m e n t o f th e N e th erla n d s, Ju ne, 1984 '’O rganization fo r E c o n o m ic C o o p e r a tio n an d D e v e lo p m e n t (O E C D ) 1981 E co n o m ic In stru m en ts in S o lid W aste M a n a g em en t P aris, O E C D It seems possible th at, in certain circum stances, refinem ents could be introduced into the D R system to reduce the chances th at the agency will be defrauded F o r exam ple, the purchaser o f a m achine o r com pound could be given a piece o f paper— a title or m anifest— th at would set out just how m uch o f w hat w as bought T his would have to be produced along with the actual item (s) to qualify for the refund T hen counterfeiting would involve b o th item an d title C hances o f detection w ould be in creased Such a system w ould perhaps be justified for large purchases such as refrigerators (containing fluorocarbon com pounds in their cooling sys tems) But it seems clear th at at som e point, as the cost o f the item(s) purchased decreases, the system would cease to be ju stified 34 In thinking a b o u t applications o f positive incentives in general and o f D R systems in p articu lar, it will be useful, if n ot essential to ensure the success o f the system, to begin by cataloging the h azard o u s w astes th at display the characteristics identified above F o r exam ple, refrigeration 14A p p ly in g th e m a n ifest idea fu rther u p th e ch a in , say a t th e w h o lesa le level, w o u ld p rob ab ly im p ly th a t th e u ltim a te p u r c h a s e r /u s e r w o u ld h a v e to b rin g th e item to a p a rticu la r p la c e so that it c o u ld b e m a tch ed a g a in s t th e w h o lesa ler's record T h is m igh t n o t b e a p ro b le m for, sa y , co n ta in ers Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn units containing freons (toxic only indirectly via their effect on ozone) seem to fit these categories They are easy to identify, unlikely an d difficult to counterfeit and difficult to destroy M ercury batteries m ay be hard to destroy, b ut identifiability could be a problem and counterfeiting would seem a definite threat L iquid chemicals and sludges— for exam ple, the halogenated h ydrocarbon solvents and chem ical reactor " b o tto m s " —are m ore problem atic still It will be difficult to determ ine w hether a com pou n d presented at a disposal site is actually th at for which the refund is offered It will be harder still to tell w hether the com p o u n d has been diluted or contam inated w ith other substances It m ay be th at counterfeit ing will prove w orthw hile for som e com pounds or a t least th at som e cheap d ilu tan t m ay be profitably substituted for the com pound o f greatest inter est In short, to the extent th at the identity o f the w aste being returned is in d o u b t, m onitoring will be required and will be m ore dem anding than th at required for eyeballing a bottle o r an au to hulk T his will be true w henever the system has to deal with containerized m aterials th at may not be w hat the label asserts T he above cautions are n ot m eant to suggest th at D R system s should be relegated to the scrap heap, if the expression will be pardoned Rather, the lesson seems to be th at, as in every policy issue, the closer we examine the facts, the m ore com plicated the task becom es T hus, when examining any p articular disposal problem , it will be helpful to b ear in mind the follow ing questions: W hat we w ant to achieve: • R eduction in use as we m ight for a pesticide; • Recycling and recovery o f (nearly) all o f w hat is used, as we might for a solvent, lubricant, o r refrigerant; • Relatively safe disposal, as we m ight for a com pound th at breaks dow n but does n o t dissipate in use? W hat are the "characteristics” o f the use o f the h azard o u s material: • Inevitably dissipative, as for herbicides and pesticides th at have been introduced into the environm ent; • N aturally conservative, as for a refrigeration unit? W hat are the characteristics o f the source: • Fixed, as are classical point sources o f air and w ater pollution; • M oveable, if n o t actually m oving, as in sm all volum es o f liquids generated in ways th at m ake cap tu re an d containerization feasi ble? H ow h ard is it to identify the waste stream ? • Will sim ple inspection suffice, as it does for car hulks an d bottles? • Will it be necessary to perform simple tests, such as a weight check, o r a straightforw ard qualitative analysis to see if the m ate rial is for exam ple, an acid? • Will a difficult q uantitative analysis be required to determ ine com position and co n tam in atio n levels? Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn W hat is the origin o f the waste: • C ontam inated residue o f som ething toxic introduced into a p ro cess, such as chrom ium in the plating industry; • A product o f the process itself such as dioxin; • A product th at once used becomes a toxic discharge, such as a pesticide o r herbicide? The application o f these questions to specific design problem s m ay be illustrated with a few examples: • If the hazardous m aterial is inevitably dissipated in use, society can not reasonably have as a goal its recovery But the goal o f decreased use is reasonable As a general rule, orders to reduce use will involve enforcem ent difficulties But a tax on the m aterial itself has the decentralized effect o f encouraging each user to decrease use T he size o f the tax can be tailored to produce the desired decrease in use if the appropriate dem and relation(s) is(are) known • If recycling is the desired goal, a rew ard for turning in the recyclable m aterial sounds prom ising A s suggested above, the easier it is to be sure o f the identity an d suitability o f w hat is returned, the easier it will be to adm inister the reward • If the waste is generated in large volum es in a production process (spent pickling acid from a steel mill, for exam ple) the problem begins to look a lot like a standard point source problem The sources' options for evading regulations and thus avoiding negative incentives will be lim ited T he definition o f waste as hazardous need not determ ine the approach to achieving a goal o f safe disposal Beyond this com m on sense sort o f analysis, w hat can be said ab o u t the potential im pact o f econom ic incentives in toxic waste control? F o r exam ple, w hat ab o u t static econom ic efficiency, a m ajor concern o f com m enta tors exploring such incentives in other environm ental pollution contexts? The answ er to this ap parently straightforw ard question is a com plicated one: w hether econom ic efficiency is even a well-defined concept, let alone a benchm ark we can conceivably ap proach, depends on answ ers to the above questions T hus, for exam ple, if society w ants to achieve 99 percent recycling o f spent au to lubricating oil, regardless o f source (service station or backyard), then, a deposit-refund system has prom ise, an d the size o f the refund need n ot vary with location o f the source (though it m ight vary depending on the type o f source— w hether private person o r repair shop) Therefore, trial and e rro r could conceivably be used to establish the a p pro p riate refund, which w ould be th at refund resulting in exactly the desired percentage o f recycling T he cost o f achieving the goal w ould, at least in theory, be m inim ized by applying this deposit-refund level If, on the o th er hand, the goal were to keep g roundw ater co n tam in a tion below som e upper lim it in a p articular aquifer, source location w ould Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn m atter because the relation o f discharge point to the flow o f w ater in the aquifer w ould determ ine the contrib u tio n o f any p articu lar source to co n tam ination at any “ dow nstream ” point T he relationships between specific source discharges and observed dow nstream co n tam in atio n are difficult to determ ine for aquifers with m ore than one or tw o sources of co n tam ination or w ith com plicated flow patterns Because source location m atters to relative contrib u tio n to the problem , the size o f the optimal refund per gallon for each source w ould in principle have to vary to achieve econom ic efficiency But finding a set o f location-specific depositrefund levels w ould be very h ard to given the cu rren t state o f knowl edge o f m ost aquifers, as ju st discussed F u rth er, trying to determ ine the efficient (cost-m inim izing) deposit-refund levels by trial an d erro r would be costly to u n dertake an d probably doom ed to failure in any case.35 CONCLUSION T he b o tto m line am ounts to this E conom ic incentives seem to have some unique prom ise in the hazardous waste field T his prom ise grows out of the chance to change the term s o f the m o nitoring and enforcem ent prob lem o f the environm ent w atchdog, n ot o u t o f the p ro m o tio n o f economic efficiency It is potentially greatest w here the wastes involved are segre g ated and generated in sm all volum e, precisely those situ atio n s in which the th reat o f im proper disposal is m ost serious A lthough positive rew ard system s are n ot required to reap these bene fits, they are m ost likely to be the system s o f choice A taxation system requires know ledge o f raw w aste generation so th at the difference between a m o u n ts generated and am ounts properly disposed o f m ay be taxed D eposit-refund systems have the advantages o f being self-financing and of p ro m o ting decentralized actions to correct im proper disposal But they are effective only where the w aste is in the form o f an ap p ro p riate deposit vehicle It m ust be rem em bered th at even a rew ard system leaves the agency w ith a m onitoring problem H ow difficult this problem is depends on how h ard it is to ensure th at w hat is subm itted for the rew ard is what it p u rp o rts to be 15T h e extra e x p e n se o f trial an d error p o lic y m a k in g lies in th e c o m b in a tio n o f lags in re sp o n se b y th e so u rce s to ch a n g es in th e refu nd level an d in th e irreversib le co m m itm e n ts o f in v e stm e n t c a p ita l th ey m a k e w h en th ey d o re sp o n d T h e first im p ly extra d a m a g es to so c ie ty a n d th e latter im p ly ex tra d is p o s a l c o s t s — w h ere " extra” is m e a su r ed relative to a situ a tio n in w h ich th e co r re ct refu nd lev el c a n be c a lc u la te d in a d v a n c e from k n o w le d g e o f so u rce c o s ts an d n atu ral w o r ld (h er e aq u ife r) b eh a v io r T h e effort w o u ld p ro b a b a ly fail b eca u se ev e n i f th e a g en cy fo u n d a set o f refu n d s th at see m ed to e n c o u r a g e th e right level o f w a ste re co v e ry o r d e s tr u c tio n , it w o u ld be esse n tia lly im p o ssib le to d ete rm in e m erely by fu rther trials w h eth e r th is w a s th e c o st-m in im iz in g set Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn A P P E N D IX Hazardous waste management began at the federal level with control of solid waste under the Solid Waste Disposal Act of 1965 [That] law focused on garbage, particularly on restricting open burning, which was considered a fire hazard In 1970, then-President Nixon signed an amended version of the solid waste law and renamed it the Resource Recovery Act This law provided funds for collecting and recycling materials and required a comprehensive investigation of hazardous waste management practices in the United States In 1976, [Con gress] passed the Resource Conservation and Recovery Act of 1976 (PL 94-580), which completely replaced the language of the Resource Recovery Act The new law contained provisions on solid waste and resource recovery, including disposal of used oil and waste, and it closed most open dumps; it redefined solid waste to include hazardous waste and ordered EPA to require "cradle to grave” tracking of hazardous waste and controls on hazardous waste facilities The Act required standards to be set for hazardous waste treatment, storage, and disposal facilities to provide for “the maintenance of operation of such facilities and requiring such additional qualifications as to ownership, continuity of operation, training of personnel, and financial responsibility as may be necessary or desirable.” The [Love Canal] event triggered the discovery of thousands of other dumpsites, alarm ing the public and mobilizing the Administration and the Congress [EPA] issued the first two portions of the RCRA hazardous waste rules in 1980 in an attempt to prevent creation of more toxic waste dumps Also in 1980, Congress passed what is a logical complement to RCRA, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (PL 96-510) (CERCLA), also known as the "superfund law” , which assures financial responsibility for the long term maintenance of hazardous waste disposal facilities, and provides for the containment and cleanup of old, abandoned hazardous waste disposal sites that are leaking or endangering the public health Regulations governing the transport of hazardous wastes were developed jointly by EPA and the Department of Transportation (DOT) Major provi sions of the 1984 RCRA amendments (PL 98-616) call for banning land disposal of untreated hazardous waste within five and one-half years The new law also closed "loopholes” in previous hazardous waste rules Increasing the breadth of EPA’s regulatory program, the amendments require the agency for the first time to regulate an estimated 600,000 generators of small quantities of hazardous substances and petroleum products —Bureau of National Affairs, U.S Environmental Laws 173-76 (1986) Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn 17 Weighing Alternatives for Toxic Waste Cleanup PETER PASSELL Peter Passell is a columnist on economic and financial issues for The New York Times A decade after W ashington declared w ar on businesses th a t expose th public to hazardous wastes, environm ental experts are questioning th unquestionable: Is it w orth spending a staggering $300 billion to $70 billion to restore waste sites to pristine condition? W hile acknow ledging th a t no level o f exposure to dangerous chemical is desirable, the experts argue th at the risks should be p ut in perspectivi Virtually all o f the risk to hum an health, m ost analysts agree, could b elim inated for a tiny fraction o f these sum s In a typical project, in Holdei M o., $71,000 would be enough to isolate an ab an d o n ed factory containin residues o f toxic chem icals, m aking it extrem ely unlikely th a t anyon w ould ever be harm ed by the wastes A n o th er $3.6 m illion would clean u virtually all residues an d bury rem aining traces under a b lanket o f cla; But state and F ederal laws require a cleanup th at w ould cost $13 million to $41.5 m illion "T h e last couple turns o f the screw cannot \ justified on econom ic criteria.” said T om G rum bly, an environm entali w ho is president o f C lean Sites, a nonprofit organization in Virginia th; advises com m unities on h azard o u s w aste cleanups T o be sure, the problem o f weighing cleanup benefits against the cos is com plicated by a lack o f in form ation a b o u t how dangerous mdividu chem icals are an d in w hat concentrations N onetheless, experts insist th "Experts Question Staggering Costs of Toxic Cleanups." by Peter Passell from The New York Times (September 1991) Copyright £ 1991 by The New York Times Company Reprinted by permission Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn w hat began as a crusade against polluters has becom e a diversion, siphon ing m oney and technical expertise from m ore pressing environm ental concerns M ore stringent scientific criteria should be used to identify waste sites needing im m ediate attention, they say A nd once identified, the cleanup should be carefully aim ed at saving lives rather than restoring land to preindustrial condition Analysts acknow ledge th at redirecting G overnm ent policy will be nearly im possible w ithout a radical change in the way A m ericans think about the risks from hazardous waste Some would try to tem per the zeal for large-scale cleanups by asking the com m unities th a t benefit to share in the costs “ Everybody w ants a C adillac as long as som eone else is paying,” said R obert H ahn, an econom ist at the A m erican E nterprise Institute, a research organization in W ashington But there is little confidence in W ashington th at cost-sharing would m ake a big difference in public attitudes A nd no enthusiasm can be detected for asking voters to pay to protect them selves against hazards they did n ot create A first priority, argues F rank Blake, a form er general counsel to the E nvironm ental P rotection Agency who now w orks for the G eneral Elec tric C om pany, is m ore credible inform ation th at lifts the “ fog o f fear" from public perceptions Specifically, he says, people need ways to com pare the risks o f exposure with the dozens o f o ther risks th at are accepted as part o f daily life The best-know n F ederal waste initiative is Superfund, w hich has spent $11 billion in a decade on emergency m easures at 400 abandoned sites and full-scale cleanups at 60 others But the cleanup m andated by the S uper fund legislation has barely begun Some 1,200 o th er sites are already on the E nvironm ental P rotection Agency's national priority list, and the C ongressional Office o f T echnol ogy A ssessm ent expects thousands to be added W hat is m ore, a slew of Federal laws require the eventual cleanup o f tens o f thousands o f other sites polluted by governm ent and business M r G rum bly o f C lean Sites says the bill for w aste containm ent could reach $20 billion a year by the end o f the decade T he country could afford such sum s, everyone agrees, if the problem d em anded it Businesses and taxpayers have m anaged to cope w ith other anti-pollution regulations th at now cost $115 billion annually, by the E P.A 's reckoning But little h ard evidence exists to support a crash effort People living o r w orking near identified toxic w aste sites naturally w orry th at the chem icals will find their way into air, food and w ater But m any analysts believe the im m ediate dangers have been exaggerated "W hen you look for deaths from h azard o u s wastes, you ju st d o n 't find th em " said Bill R alston, an analyst at SR I In tern atio n al, a consulting com pany in C alifornia Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn The Big Cleanup The cost of cleaning up several categories of polluted sites ESTIMATED N U M B ER OF SITES COST CATEG O RY (ESTIM A TED) (S BILLIONS) Superfund abandoned sites Federally owned sites Corrective action on active private sites Leaking underground storage (tanks) State law mandated cleanups Inactive uranium tailings Abandoned mine lands 4.000 5,000-10.000 2,000-5,000 350,000-400.000 6,000-12.000 24 22,300 $80-120 75-250 12-100 32 3-120 + 1.3 55 S ources: R o b er t H a h n A m erica n E n terp rise In stitu te O ffice o f T e c h n o lo g y A ssessm en t T he E nvironm ental P rotection Agency estim ates th at roughly 1.000 cancer cases annually can be linked to public exposure to hazardous waste T h at h ardly m akes abadoned waste sites a non-problem in anyone's book But the environm ental agency does rank h azard o u s waste far behind cancer risks like exposure to chem icals in the w orkplace and depletion of the atm osheric ozone layer M oreover, m any o f these greater risks could be reduced at a tiny fraction o f the cost o f the h azard o u s w aste fix man d ated by law The E.P.A estim ates, for exam ple, th at 5,000 to 20.000 lung cancer death s are caused each year by in d o o r exposure to rad o n gas leaking from underg round rock form ations M ost o f these d eath s could be prevented by perform ing inexpensive tests on buildings in d o n -p ro n e areas and ven tilating basem ents where concentrations o f the radioactive gas are high W hat explains this a p p a re n t d isto rtio n in environm ental priorities? Political econom ists have long noted th at the focused convictions of the few alm ost alw ays dom inate the w eakly held views o f the many And C h ristopher D aggett, the form er head o f the New Jersey D epartm ent of E nvironm ental P rotection, argues th a t n o th in g focuses convictions like a n earby w aste site "T ry telling people th at the leaking drum s across the street a re n 't a h a z a rd ," he said T here are the questions o f legal an d m oral responsibility Som e envi ro n m ental hazards, like au to em issions, are everyone's fau lt—an d there fore n o o n e’s Som e, like cigarette sm oking, are no on e’s fault but one's own But M r G o u g h notes th a t the public blam es "greedy an d th o u g h t less" co rp o tio n s for the w aste peril and is thus little inclined to w eigh the benefits o f cleanups against the costs It is n o t surprising, then, th at com m unities w ith w aste sites in their m idst w ant them restored to how they were before industrial use N o r is Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn it surprising th at the elected officials and adm inistrators w ho write the rules for cleanups take their cues from an angry and anxious public C onsider the 11-acre Rose Chem icals C om pany site in H olden, Mo Until 1986 the site was used to store and process PC B ’s, toxic liquid chemicals prized by m akers o f electrical transm ission equipm ent for their insulating properties and their stability at high tem peratures T he barrels of PCB’s were rem oved long ago, but residues rem ain in the buildings, the soil and the bed o f a small stream An E.P.A analysis says th at for 571,000, the site could be perm anently isolated from the com m unity T he tow n's drinking w ater would be safe because there is no g roundw ater to tap near the site But under Superfund regulations, this cheap fix w ould be unacceptable because there is one chance in 10,000 th a t som eone would develop cancer from eating the cattle that grazed near the p ro p erty ’s perim eter— an d roughly the same risk that a determ ined trespasser could get cancer from repeated contact with building surfaces O ther possible fixes range from cleaning the stream bed and capping the site w ith 10 inches o f clay ($3.7 m illion) to rem oving 14,000 tons o f contam inated soil an d building m aterials and incinerating it elsewhere (S41.5 million) T he E P A 's preferred $13.6 m illion option: rem ove all of the suspect soil and m aterials, then incinerate the m ost contam inated debris and bury the rest in a specially designed landfill M r G rum bly o f C lean Sites notes th at the E P A 's com prom ise would allow virtually any future use o f the site A nd he points out th at it would cost just a third as m uch as the m axim um effort But others m ay w onder w hether the m ore flexible use o f the land is w orth the extra $900,000 an acre beyond the cost o f scrubbing the stream and capping the property A nd still others m ay ask w hether a bare-bones fix—one th at reduces neighborhood cancer risks to say, one-thousandth the chance o f getting cancer from a lifetime o f norm al exposure to the sun—would n ot be adequate M r H ahn o f the A m erican E nterprise Institute and others inclined tow ard less am bitious goals suggest using financial incentives to discipline the decision-m aking process If those a t risk from hazardous waste sites wanted m ore than a basic cleanup, they could be asked to share in the cost D an D udek an econom ist at the E nvironm ental Defense F und, a m ainstream environm ental group, offers a variation based on the carrot rather than the stick Instead o f taxing com m unities to cover the extra cleanup effort, he w ould give them p art o f the savings associated w ith a less-than-total repair T he tow n o f H olden, for exam ple, m ight be offered 20 percent o f the $9.9 million difference as an incentive to save lives in other ways— say, by purchasing m ore efficient firefighting equipm ent, or by testing every hom e for rad o n and lead contam ination T h at idea appeals to F rancis B rillhart, the m ayor o f H olden, w ho said he fears th a t th e "E P A is going a bit o v erb o ard ," slowing the cleanup Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn by choosing a m ethod th at requires incineration If H olden could keep some o f the savings generated by a faster cleanup, he says, so much the better But few experts think m any com m unities would be likely to take the financial bait T he approach presum es th at people w ould com prom ise on safety in return for low er taxes or im proved public services Everyone trades safety for m oney o r convenience o r simply pleasure in daily life new tires are safer th an w orn ones; turkey breast is safer to eat than a cheeseburger But people rarely acknow ledge they are m aking choices, even to themselves T h at is why m ost analysts w orried a b o u t the open-ended commitment to scrubbing the country pin their hopes on educating the public about relative risks “W e need m ore an d better inform ation ab o u t health risks," said K atherine P robst, an analyst at R esources for the F u tu re, a nonprofit environm ental research group T he way in which the inform ation is presented m ay also m atter: know ing hazardous waste can kill is less useful th an know ing it kills onetw entieth as m any A m ericans as radon M r G rum bly o f C lean Sites argues th at the credibility o f government tu rn s on the transparency o f its decision-m aking O ne key to a rational public debate, he insists, is to "let the public in on the gam e." But M r G rum bly is an optim ist “ People u n d erstan d ," he says, "when they are w asting o ther people’s m oney.” Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn BENEFIT-COST ANALYSIS AND MEASUREMENT All the articles in this collection have been concerned in one way or another with the problem of achieving a socially optimal use of environmental resources Whether the goal is pursued through the policy most often recommended by economists of “putting a price on pollution,” or by means of direct controls of the sort embodied in federal environmental legislation, progress depends on a reasonably correct evaluation of the social benefits and costs that are likely to flow from varying amounts of environmental protection The theoretical justification for diverting resources from normal market-directed uses was developed in the first two sections of this volume In principle, such redirection could be justified if the beneficiaries could afford to more than compensate the losers and still gain from the change Thus the evaluation of environmental protection measures, as well as other governmental programs, depends on their benefits and costs as indicated by the community’s willingness to pay for them Market prices measure willingness to pay for the vast majority of goods and services produced in our economy But the benefits derived from environmental improvements frequently are inappropriable meaning that it frequently is impractical or even impossible to deny them to anyone who wants them For this reason, they cannot be marketed and not have prices Thus evaluating environmental programs is much more complicated than simply estimating the goods and services that they produce and consume, looking up the prices, and adding up the totals Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn The first selection in Section IV, Robert Dorfman’s “ An Introduction to Benefit-Cost Analysis,” introduces the concepts and principles of benefit-cost analysis It pays particular attention to the methods used in practice to establish monetary values for the beneficial effects of environmental projects This paper leads into Kenneth J Arrow’s discussion of the problems of measuring the benefits of social, as distinct from private, investments in “ Criteria for Social Investment.” These problems, arising from the absence of market prices, include the needs to impute “shadow prices” to the various types of benefit resulting from the investments, and to identify the appropriate social discount rate to be applied to deferred benefits As Arrow points out, there is no difficulty about the concept of a shadow price, but there is an “ intensely practical problem of measuring it." In the case of environmental benefits, the difficulties have proven especially intractable Let us consider some of the reasons The economist has several sets of tools in her kit for approximating what people would be willing to pay for unmarketed goods and services To begin with, benefits may flow, in part at least, from “intermediate” goods or services whose values can be measured by their contribution to the production of commodities that are marketed A case in point is a decrease in the cost o f producing some marketed commodity resulting from reducing the atmospheric concentration of sulfur dioxide or other corrosive gases Another example is the increase in the value of the fish catch when the fish population in a river or stream increases as a result o f antipollution measures An alternative approach is to calculate the amount by which some identifiable costs attributable to environmental conditions would be lowered if those conditions were improved Examples might be reductions in the costs of maintaining and replacing industrial equipment or in medical expenditures A third approach is to deduce values for nonmarketed goods and services from information about what producers or consumers pay for similar benefits that are bought and sold This method requires that close substitutes for the environmental services be traded in the markets But many of the kinds of benefit that accrue to society from environmental improvements elude all these market-based techniques The kinds of benefit that affect consumption activities directly are more subject to these difficulties than benefits that affect production An important component of the demand for environmental protection, for example, is the public’s desire to enjoy greater natural amenities “Nonparticipatory values” can also be very important For example, the millions of people who each place a small value on the preservation of the California redwoods without expecting ever to see them may account for more value in the aggregate than the few million who actually visit them It is difficult to find good substitutes in the marketplace for such amenities Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn ... in a Paretoefficient situation T he C oase T heorem com es in two versions, a strong and a weak ver sion T he strong version states: given a structure o f p roperty rights which is com pletely... strong by relaxing the above-m entioned assum ptions O u r u n derstanding o f the concepts o f externality and P areto-relevance is enhanced by working th ro u g h this process U nder the strong... “ C oase T heorem " in its "w eak ” and “ stro n g " versions T he discussion shows th at the strong version is a useful pedagogical device w ith little policy relevance, while the weak ver
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