Environmental Regulation
50 likes | 208 Vues
Environmental Regulation. Bargaining, Standards, Taxes & Fines, Trading of Emissions Allowances. The Coase Theorem. Under ideal conditions, efficient solutions to externalities are realized by bargaining among the affected parties, regardless of the assignment of property rights.
Environmental Regulation
E N D
Presentation Transcript
Environmental Regulation Bargaining, Standards, Taxes & Fines, Trading of Emissions Allowances
The Coase Theorem • Under ideal conditions, efficient solutions to externalities are realized by bargaining among the affected parties, regardless of the assignment of property rights. • Coase’s Example: straying cattle • Is it an “Impossibility” Theorem? • Ignores equity – who gets bargaining rent • Ignores strategic possibilities • Extortion by threats to pollute • Ignores transaction costs • Organizing, free riders, cross state lines, smoking example
Taxes & Fines vs. Standards • Without regulation, private MC of pollution is less than social MC • Optimal tax • Raises private MC = social MC = MB (demand) • Collects tax revenue • Optimal fine similar, F* = MB • Standards reduce Q of polluting good • Same outcome as tax if set correctly • Preferred by producers since profits increase • Both entail enforcement costs • Monitor to enforce standard • Prevent tax evasion
Uncertainty and Heterogeneity • Set standard, PC*, expecting pollution control cost MC1 = MB • If true MC0 > MC1, impose excessive cost • If true MC2 < MC1, lose foregone benefits • Similar outcomes if MC varies across sites • Solutions • Differential standards – “new site bias” • Trade allowances to establish price • Netting, offsets, bubbles & banking
