econ381 final 2017

Environmental Economics

https://mermaidjs.github.io/mermaid-live-editor/#/edit/Z3JhcGggVEQKQVtDaHJpc3RtYXNdIC0tPnxHZXQgbW9uZXl8IEIoR28gc2hvcHBpbmcpCkIgLS0-IEN7TGV0IG1lIHRoaW5rfQpDIC0tPnxPbmV8IERbTGFwdG9wXQpDIC0tPnxUd298IEVbaVBob25lXQpDIC0tPnxUaHJlZXwgRltDYXJdCg

Motivation for study environmental economics

Environmental Economics: A Very Short Introduction: UCL

Marginal Revolution University: Environmental Economics

If you have time, you can have a look

Environmental Economics and Policy C1, 001 - Fall 2013 UCBerkeley The best environment economics programe Economics of Natural Resources : UBC

Notes from textbook

gooogledrive

https://drive.google.com/file/d/0Bwjb_yvvpBgHbUdNdFlTWnZMYXM/view?usp=sharing

Notes from classroom

In class.

Normative analysis

Pollution damages

Marginal damages

• public bad: vertical aggregation: 一个污染对小王，和对小李的damage加在一起。

Marginal Abatement cost

• minimum cos tof reducing emissions
• different technology or location
• horizontal aggregation: 老王和老李的污染，成本从低的开始。

Equally marginal priciple

total damage

savings

total abate cost

Chapter 6 Cost Benefit Analysis

Procedure

• identify option
• list all benefit and cost
• calculate gross befefit for each otption
• choose option w the largest gross benefit

risk and uncertainty

• know outcome
• know probability

Benefit(WTP)

• A measure of willingness ot pay for an imporviment in environmental quality
• no market for environmental market

• underestimate (bias downwards)

• Direct estimation
• Indirct questionaires
  • preventative expenditures/defensive action
  • wtp of clean air
• Hedonic estimation
  • regression with control variables
• travel costs
• mitigating expenditures to estimate willingness to pay

chap 7 Cost

• cost estimation: opportunity cost from society’s point of view
  • MAC
• subsidies
• cost of enforcement

Local regulation

After regulation, profit change

• competetive market
  • one firm produce more Q_i
  • but less firms stay in market. some leave mkt. total output, n*Q_i
• monopoly

Complicated case

• PPF
• midterm long question. calculation 35 mks,
  • steprise demand/supply (assignment )

Policy

• govt use tax / permits / standards to help contol emission

• efficienty
• equity
  • compensate
  • budrn should fall on those most responsible for emission.
• innovation
  • shift down MAC /MD
• enforcement cost
  • admin cost
  • legal
• pollution tax vs abatment subsidies(money for every unit of emission reduced)

Decentralized and centralized

chap 10 Decentralized

• small #
• liability laws.(侵权法)
  • polluter must pay recipients damages
  • better off by abatement
  • incentive for firms to choose socially optimal level
• Problems w liability laws
  • too many ppls.
  • involve courts
  • burden of proof/ prove causal effect
  • legal staning
• liability laws
• property right
  • page 23 Final exam
• Moral sway
  • “littering is bad”
  • green goods

Chap 11 centralized

Standard /command/ direct regulation

• Ambient standard
• emission standard
• technologyical standard

• Performance Standard

• all or nothing

• on incentive to innovate

• different MD
  • urban
  • rural
• different MAC
  • inefficient
• uniform standard
  • fail to minimize social cost of certain abatement
  • decrease incentive to innovation
• enforcement cost
  • hard to get comply
  • hight compliance cost

Chap 12 Taxes and subsidies

• taxes: explicit cost associated w every unit of emissions
  • a signal for people
  • creating a mkt

Advantage of Taxes

• cost effectiveness: least cost of abatement
  • MAC1=MAC2
• Tax: less informationally demanding than standards
• incentive to innovate p29 firm’s incentive
  • if govt change tax along the new technology, even better
• Porter’s Hyperthesis
  • weak: stricter env regulation creates greater incentive to innovate
  • strong: stict env regulation leads to higher confidence and higher profits
    • implies firms aren’t maximizing profits in the first place
    • regulation decrease quantity and drive up prices
• enforecibility
  • at minimal cost
    • impossible to tax non-point source
    • tax input ex: pesticide
• distributional effects
  • pass through to consumers(perfect competition LR PI = 0)
    • disporportional to poor people
  • Govt gains money w the tax
    • use to benefit poor people
• Deposit/return
  • hybrid of tax and subsidy
  • govt taxes goods on sold.
    • return:
    • not return
• attractiveness to firms
  • grant property right to surce/subsidy: recipter brike firm not to pollute
  • No intervetion
  • Pollution standard
  • liability regime
  • property right granted to recipiate: firm pay b+c

Chapter 13 Transferable pollution permits

• sort of standard: know # of permit target
• sort of tax: ensure MAC1=MAC2/ cost effective redunction

p 32 final

• calculating wher the permit (how much) and how much they trade for

max WTP for a permit = $ 20

p34 final

From MAC1, MAC2 and MD to calculate the optimal emission, then the permits

Incidence of a tax

• slope of supply and demand curve to decide who bear the most of the tax

Transferable emission permits : “cap and trade”

• Ontario
• BC Carbon tax

Initial allocation of permit

• all firms equally

• auction off permits : like a tax

  • firm like to be given rather than to buy one

    Trading rules

Non-uniformly mixed pollutions

market size

• not a broad mkt
• diff region

Environmental

• samller areas

Enforcement

• monitoring : tax and permit
• cheat

  Incentive

• firms have incentive to innovate

Uncertainty final

MAC know and MD unknow

• since firms only response to MAC and policy, all policy can induce the same behavior, then the same resulted loss.

MAC unknown and MD know

• since MAC unknown, if we make mistake of MAC, firms will make different choice, then cause different resulted loss.
  • steepness of MD and MAC yields different level of loss P39-40
• if MD steep, standard/permit is better than a tax
  • UNDERESTIMATE OF MAC
  • Overesimate of MAC
• If MD less steep,
  • tax is better than standard and permit

Liability: firms inernalize MD curve

• can get socially efficient level even if Govt doesn’t know MAC.
• firm know itself MAC
• works for few firms. Big mkt, hard to tell who is responsible.

Consider a single emitter of a pollutant. Assume that the government knows the MAC curve but not the MD curve.

an optimal emissions tax, the optimal number of transferable emission permits and an optimal performance standard would all yield the same level of social welfare.

??? Only under uncertainty, whether an emission tax or transferable emission permits results in social welfare loss depends on the steepness of the MAC curve.

Creating the incentive for firms to innovate to reduce their MAC curves

depends on the choice of government policy.

If transferable emission permits are auctioned off

The outcome is the same as a uniform performance standard.

The outcome is the same as the government taxing emissions.

???The outcome is the same as if the property right was granted to the recipient and there was a negotiated outcome

Consider two (static) optimal policies: the socially optimal emission tax and the socially optimal number of transferable emission permits.

The incentive to invest in R&D to lower marginal abatement costs when the firm anticipates

• 1) receiving the same number of transferable emission permits regardless of the investment and
• 2) the same price of the permits

is exactly the same incentive the firm would face if facing a constant tax at the original optimal rate.

Firms prefer emission taxes because

efficient.

Assigning property rights and relying on bargaining between affected parties can solve externality problems when

there are few counter-parties and transaction costs are small.

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