外部性作用role of government notes lec3 hechuan笔记角色.pdf

Theroleofgovernment

•ExternalitiesL3

10-11Explainhowexternalitiesconstituteamarketfailure.Usinganexample,comparetheefficiencyofthetaxation

andquantityapproachesindealingwithexternalities.

09-10Discuss,usingexamplesandwithreferencetoeconomictheory,therelativemeritsofPigouviantaxationand

licencesindealingwithexternalities.

ExternalitiesDefined

Marketfailuresrefertosituationsinwhichthemarket,absentofgovernmentintervention,leadstoinefficiencies.

Externalitiesareaclassicexampleofthetypeofmarketfailures

Anexternalityisacostorbenefitnotexpressedinamarketandthereforenotinternalizedinbuyers’orsellers’

marketdecisions.

EG:AgentA’swelfareisdirectlyaffectedbyAgentB’sactions,yetAgentBneitherbearsthecosts

orreceivesthebenefitsofdoingso.

Externalitiescanbenegativeorpositive.eg:Pollution,trafficcongestion,smoking…/RD,

education…

-Negativeproductionexternality:Whenafirm’sproductionreducesthewell-beingofotherswhoarenot

compensatedbythefirm(eg:pollution).

-Negativeconsumptionexternality:Whenanindividual’sconsumptionreducesthewell–beingofotherswho

arenotcompensatedbytheindividual(eg.smoking).

-Positiveproductionexternality:Whenafirm’sproductionincreasesthewell-beingofothersbutthefirmis

notcompensatedbythoseothers.

-positiveconsumptionexternality:Whenanindividual’sconsumptionincreasesthewell-beingofothersbut

theindividualisnotcompensatedbythoseothers.

Noexternalities

Considerafactorythatproducessteelandpollutestheenvironment.Thequantityproducedissuchthat:

Demand=sumofthemarginalb