Chapter 4
The Economic Theory of Pollution Control
Chapter Summary
This chapter offered the basic theoretical framework for the standard economic approach to
pollution control. More specifically, the two key concepts explored at some length in this chapter are
pollution control and pollution damage functions. A good understanding of these two concepts is
important for the following three reasons: (i) the theoretical derivation of the optimal level of
pollution, (ii) the technological determinant of pollution control, and (iii) the ‘valuation’ of the
environment—an important subject matter to be addressed in Chapter 7. Last but not least, this
chapter also included an ecological appraisal of the standard economic notion of the ‘optimal’ level
of pollution.
Review and Discussion Questions
1. Explain in your own words what exactly the concept of pollution control (abatement) cost
represents. Provide two examples that you consider are your own (not taken from the
textbook).
2. What does the benchmark waste (emission) level represent? What determines its level?
3. Refer to Figure 4.1 in your textbook (p. 71). Based on this graph, it is argued that the cost of
controlling pollution increases with the successive increase in pollution clean-up. Are you
comfortable with this argument (reasoning)? Provide a brief comment.
4. Pollution control (abatement) cost basically refers to the technology used to reduce pollution.
Given this, how would an advance in the technology of pollution control affect the marginal
control cost (MCC)? Explain this using a graph. Can you provide an example or two that would
represent an advance in pollution control technology?
5. Explain in your own words what exactly the concept of pollution damage cost represents.
Provide two examples that you consider are your own.
6. In the discussion of damage costs, why is it important to give attention to the type (nature) of
the waste, that is, biodegradable versus persistent pollutants? Explain.
7. Explain why environmental damage costs are external. Use some concrete example(s) to support
your answer. What is the implication of this to the valuation of the environment?
8. Refer to Figure 4.2 in the textbook (p. 73). This graph demonstrates that the marginal pollution
damage cost (MCC) of each successive unit of pollution is incrementally increasing at an
increasing rate. Do you fully understand the ecological explanation for this phenomenon?
9. While this is not fully explained in the present chapter (Chapter 4), can you speculate why
people’s preference for a higher environment quality (i.e. less environmental damage) and
income to be the two major determinants of the marginal damage cost (MDC)? What do you
think will happen if the people’s desire for a higher environmental quality increases? Explain
using a graph. What will an increase in the average income of people do to the MDC? Explain
using a graph.
10. Using Figure 4.3 (p.73), it is shown that the ‘optimal’ level of pollution (We) is attained at a point
where MCC = MDC. It is important to note that ‘optimal’ strictly refers to ‘cost-effectiveness’,
that is, the total disposal cost of the waste specified by the bench-mark, W*, is minimized. Note
that the total disposal waste is composed of two categories of costs: total control cost and total
© 2014 Ahmed Hussen
11.
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damage cost. With this in mind, from Figure 4.3, is it clear to you why any deviation from We,
such as, Wj or Wi will entail a higher level of total disposal cost? Make sure you understand this
argument fully.
At the beginning of Chapter 4 (p. 70) it is argued that ‘trade-off ‘exists between damage and
control costs. Furthermore, ‘from an economic viewpoint, a dollar’s worth of investment
(expenditure) on pollution-control technology will make sense if, and only if, society is expected
to be compensated by the benefit to be realized from the avoidance of environmental damage
that is worth more than a dollar.’ Is this statement consistent with the condition for the optimal
level of pollution, that is, MDC= MCC. Explain.
Do you understand the explanation given for market failure using Exhibit 4.1 and Figure 4.4 (p.
74 and 75)?
Provide four good reasons why scholars who uphold an ecological perspective to pollution
control may be skeptical (critical) to the economic notion of ‘optimal’ pollution. Explain.
Make sure that you fully understand the difference between pollution prevention and pollution
clean-up.
Challenging question: Given your responses to questions 4 and 9, can you see why the MCC and
MDC curves represent the supply and demand for pollution control (i.e., higher environmental
quality), respectively?
© 2014 Ahmed Hussen