外部性与公共物品课件.ppt

Chapter 1 Chapter 18 Externalities and Public Goods Topics to be Discussed Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources Topics to be Discussed Public Goods Private Preferences for Public Goods Externalities Negative Action by one party imposes a cost on another party Positive Action by one party benefits another party External Cost Scenario Steel plant dumping waste in a river The entire steel market effluent can be reduced by lowering output (fixed proportions production function) External Cost Scenario Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production. Marginal Social Cost (MSC) is MC plus MEC. External Costs External Cost Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run. Externalities Positive Externalities and Inefficiency Externalities can also result in too little production, as can be shown in an example of home repair and landscaping. External Benefits Ways of Correcting Market Failure Assumption: The market failure is pollution Fixed-proportion production technology Must reduce output to reduce emissions Use an output tax to reduce output Input substitution possible by altering technology The Efficient Level of Emissions Ways of Correcting Market Failure Options for Reducing Emissions to E* Emission Standard Set a legal limit on emissions at E* (12) Enforced by monetary and criminal penalties Increases the cost of production and the threshold price to enter the industry Standards and Fees Ways of Correcting Market Failure Options for Reducing Emissions to E* Emissions Fee Charge levied on each unit of emission Standards and Fees Ways of Correcting Market Failure Standards Versus Fees Assumptions Policymakers have asymmetric information Administrative costs require the same fee or standard for all firms The Case for Fees Ways of Correcting Market Failure Advantages of Fe