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1、CHAPTER 5ExternalitiesCopyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin5-2ExternalitiesExternality An activity on one entity that affects the welfare of another entity in a way that is outside the market mechanismNot an Externality suburban-urban migration examp
2、le5-3The Nature of ExternalitiesPrivately-owned versus commonly-owned resourcesExternalities can be produced by consumers as well as firmsExternalities are reciprocal in natureExternalities can be positivePublic goods can be viewed as a special kind of externality5-4The Nature of Externalities-Graph
3、ical AnalysisQ per year$MB0MDMPCMSC = MPC + MDQ1Q*Actual outputSocially efficient outputabcdfegh5-5What Pollutants Do Harm?Empirical Evidence: What is the Effect of Pollution on Health?What Activities Produce Pollutants?What is the Value of the Damage Done?Empirical Evidence: The Effect of Air Pollu
4、tion on Housing Values5-6Bargaining and the Coase TheoremQ per year$MB0MDMPCMSC = MPC + MDQ1Q*cdgh5-7The Coase TheoremCoase Theorem Provided that transaction casts are negligible, an efficient solution to an externality problem is achieved as long as someone is assigned property rights, independent
5、of who is assigned those rightsAssumptions necessary for Coase Theorem to workThe costs to the parties of bargaining are lowThe owners of resources can identify the source of damages to their property and legally prevent damages5-8Other Private SolutionsMergersSocial conventions5-9Public Responses t
6、o Externalities - TaxesQ per year$MB0MDMPCMSC = MPC + MDQ1Q*cd(MPC + cd)Pigouviantax revenuesij5-10Public Responses to Externalities - SubsidiesQ per year$MB0MDMPCMSC = MPC + MDQ1Q*cd(MPC + cd)ijgkhfePigouviansubsidy5-11Public Responses to Externalities- Emissions Fee0Pollution reductionMSBMCe*f*$5-
7、12Emissions Fees Continued-Uniform Pollution ReductionsBartspollutionreductionHomerspollutionreduction507590507590MCBMCH25 f = $50 f = $50Barts TaxPaymentHomers TaxPayment5-13Public Responses to Externalities- Cap-and-TradeBartspollutionreductionHomerspollutionreduction507590507590MCBMCH25 f = $50 f
8、 = $5010ab5-14Cap-and-Trade vs. Emissions Fee0Pollution reductionMSBMC*e*f*$MCefeToo much pollution reductionToo little pollution reduction5-15Cap-and-Trade v Emissions Fee0Pollution reductionMC*e*f*$MCefeMSBToo much pollution reductionToo little pollution reduction5-16Emissions Fee v Cap-and-TradeR
9、esponsiveness to InflationResponsiveness to Cost ChangesResponsiveness to UncertaintyDistributional EffectsEmissions feeCap-and-TradePolicy Perspective: Addressing Climate Change5-17Command-and-Control RegulationIncentive-based regulationsCommand-and-control regulationsTechnology standardPerformance
10、 standardIs command-and-control ever better?Hot spots5-18The U.S. ResponseClean Air Act1970 amendmentsCommand-and-control in the 70sHow well did it work?5-19Progress with Incentive-Based ApproachesPolicy Perspective: Cap-and-Trade for Sulfur Dioxide5-20Implications for Income DistributionWho Benefits?Who Bears the Cost?5-21Positive ExternalitiesResearchper year$MPBMCMEBMSB = MPB + MEBR*R15-22A Cautionary NoteRequests for subsidiesResource extracted from taxpayersMarket does not always failPolicy Perspective: Owner-Occupied Housing
