exam 3 review
optimal pollution
• what is appropriate level of waste?
• how to achieve that level (who has to
reduce how much?)
• identify efficient levels of pollution
• discuss market levels of pollution
• demonstrate how policy can reconcile
efficient allocation of a fund pollutant
efficiency difficult,
use cost-effectiveness criteria
• select Q based on other criteria
– safe for human / ecological health
• then, how to allocate responsibility for
meeting this level?
• use cost-effectiveness criterion
– not necessarily optimal, but minimizes cost given
some level Q
cost-effective allocation: example
• assume 2 sources currently emitting 30
units
• reduce to 15 units
• how to allocate reduction between 2
sources?
cost-effective reductions
equal MAC
•
•
cost of achieving given reduction in
emissions will be minimized if and only if
MC of control (abatement) equal across
emitters
what policy instrument to achieve
equality?
1. emissions standards
2. emissions charges
3. emissions trading
1. emissions standards
• command and control
• equal reduction?
• not cost-effective
• first source lower cost
• total costs increase if both forced to clean up
same
2. emission charges (taxes)
3. emissions permit system
sample question
• with the aid of a graph illustrate optimal
pollution abatement if MAC = 10 – E with a
per unit tax of $5.
• how would this change if MAC = 8 – E?
energy:
efficient vs.
air pollution
andmarket
climateoutcomes
policy
• Efficiency of C & C policy?
– emissions standard set according to health
“threshold”
– protect the most sensitive members of popn
• But adverse health effects are occurring at
pollution levels lower than the ambient
standard
other problems
• space
– no account for number of people exposed
– sensitivity of local ecology
– costs of compliance in various areas
• time
– concentrations are important
– standards based on averages
– constant levels of control
• exposure
– indoor pollutants important too
better to use other 2 instruments:
charges vs. trading
• Emissions trading
– Initial allocation matters
– Free vs. auction
– EU experience
• Windfall profits to big polluters
– RGGE in NE 2008
• 10 NE states; emissions capped starting 2009
• Emission charges
– Tax damage costs per unit
– Double dividend
population
• model of population growth on
development
• model of development on population
growth
• microeconomic theory of fertility
model of population on development
• O = LX
– O: output
– L: number of workers
– X: output per worker
• O/P = (L/P)X…output per capita
– P: population
output per capita
• output per capita determined by
– share of population in labor force (L/P)
– output per worker (X)
• whatever affects these 2 factors is
population growth’s effect on development
factor 1: share of population in labor force
• changes in age distribution
– rapid growth means higher percentage of
young people
• large supply of people too young to work
– slow growth means high % of older people
• retirement effect
• high pop growth retards per capita
economic growth by decreasing % of pop
in labor force
factor 2: output per worker
• most common productivity enhancer:
accumulation of capital
• is there a connection between pop growth and
cap accumulation?
• 2 connections:
– more savings leads to more capital
• fast growing pop save less
– law of diminishing marginal productivity
• with fixed factor (land), adding more labor diminishes
productivity
could pop growth enhance output per capita?
technological progress / economies of scale
model of development on population
• theory of demographic transition: as nations
develop they eventually reach a point where
birthrates fall
• stage 1: prior to industrialization, birthrates /
death rates stable
• stage 2: after industrialization, lower death rates
(same birthrates)
• stage 3: falling birthrates
demographic transition
microeconomic theory of fertility
changing desired family size
• decreased benefits
– shift from agriculture to industry
– less demand for children as social security
– decrease in infant mortality
• increased costs
– increased opportunity cost of mother’s time (more
educational and labor mkt opportunities)
– scarcity / cost of housing
– cost of education