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Upcoming in Class

Upcoming in Class. Homework #1 Due Sept 4 th 1 st Group Quiz - Monday Sept. 9th Writing Assignment Due Oct. 23rd. Pigovian Tax Caveats . Sometimes it’s unclear where exactly the pollution is coming from (i.e. nonpoint-source pollution)

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Upcoming in Class

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  1. Upcoming in Class Homework #1 Due Sept 4th 1st Group Quiz - Monday Sept. 9th Writing Assignment Due Oct. 23rd

  2. Pigovian Tax Caveats Sometimes it’s unclear where exactly the pollution is coming from (i.e. nonpoint-source pollution) Not always clear who should pay. (Sturges v Bridgman)

  3. Coase Theorem • If property rights are well-defined, and no significant transaction costs exist, an efficient allocation of resources will result even with externalities.

  4. Coase Example • .Two pieces of land that are adjacent. • Farmer McDonald grows crops worth $6,000. • Farmer Brown’s land is on a swamp. Farmer Brown drains the swamp and can grow crops on his land worth $2,000. As a result McDonald’s land flood and destroys his crop.

  5. Coase Theorem Restated • The theorem states that when trade of an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.

  6. Coase Example Suppose the a prestigious university invents a new crop so that Brown’s crop is worth $8,000. What happens if property rights are such that farmers can’t drain swamps? What happens if property rights are such that farmers can drain swamps?

  7. Free Market Environmentalism The view that a more complete system of property rights and expanded use of market mechanisms is the best approach to solving issues of resource use and pollution control. Assumes zero transaction costs

  8. Coase Theorem Problem • A chemical factory is situated next to a farm. Airborne emissions from the chemical factory damage crops on the farm. The marginal benefits of emissions to the factory and the marginal costs of damage to the farmer are as follows • MB= 360 – 0.4 Q and MC=90+0.2Q • From an economic viewpoint, what is the best solution to this environmental conflict of interest? • How might this solution be achieved?

  9. Effects Free rider effect – the incentive for people to avoid paying for a resource when the benefits they obtain from the resource are unaffected by whether they pay; results in the undersupply of public goods Examples: office coffee, group projects, multiple communities paying a factory to control its pollution

  10. Holdout Effects Holdout effect – the ability of a single entity to hinder multiparty agreement by making disproportionate demands Examples: Spirit of St. Louis and the NBA, unanimous voting requirements

  11. Upcoming in Class Homework #1 Due Sept 4th 1st Group Quiz - Monday Sept. 9th Writing Assignment Due Oct. 23rd

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