【正文】 where the marginal benefit to them equals the marginal cost ?There is no reason that any one fisherperson take into account how their taking fish affects others’ experience 169。2020 Pearson Education, Inc. Chapter 18 57 The Coase Theorem at Work ?Negotiating an Efficient Solution ?1987 – New York garbage spill (200 tons) littered New Jersey beaches ? The potential cost of litigation resulted in a solution that was mutually beneficial to both parties 169。2020 Pearson Education, Inc. Chapter 18 55 A Legal Solution – Suing for Damages – Example ?Fishermen have the right to clean water ?Factory has two options: ?No filter, pay damages ? Profit = $100 ($500 $400) ?Filter, no damages ? Profit = $300 ($500 $200) 169。2020 Pearson Education, Inc. Chapter 18 53 Costly Bargaining – The Role of Strategic Behavior ?Bargaining requires clearly defined rules and property rights ?If property rights were not clear, the other party might not be willing to pay as much and the bargaining process would break down ?One party might incorrectly assume the other party will eventually break down and accept less ?Problems also arise when there are many parties affected 169。2020 Pearson Education, Inc. Chapter 18 51 Bargaining with Alternative Property Rights 169。2020 Pearson Education, Inc. Chapter 18 49 Profits Under Alternative Emissions Choices (Daily) 169。2020 Pearson Education, Inc. Chapter 18 47 Externalities and Property Rights ?Property Rights ?Legal rules describing what people or firms may do with their property ?For example: ? If residents downstream owned the river (clean water) they would control upstream emissions 169。2020 Pearson Education, Inc. Chapter 18 45 Refundable Deposits ?Deposit is paid when bottle is purchased and then refunded when bottle returned ?Can choose the deposit to give household incentive to recycle more ?Deposit increases private cost of disposal ?Supply of glass es from new glass and recycled glass ?Increasing deposit increases supply of recycled glass and lowers price of glass 169。2020 Pearson Education, Inc. Chapter 18 43 Recycling ?Marginal private cost likely constant for fixed amount of garbage ?Social cost of disposal includes the harm to environment from littering and injuries caused by litter ?Without market intervention, the level of scrap will be at m and m1 m* ?With refundable deposit, MC increases and MC = MSC = MCR 169。2020 Pearson Education, Inc. Chapter 18 41 Price of Tradable Emissions Permits 169。2020 Pearson Education, Inc. Chapter 18 39 Emissions Trading and Clean Air ?Cost of achieving an 85% reduction in hydrocarbon emissions for DuPont ?Three Options ? 85% reduction at each source plant (total cost = $ million) ? 85% reduction at each plant with internal trading (total cost = $ million) ? 85% reduction at all plants with internal and external trading (total cost = $ million) 169。2020 Pearson Education, Inc. Chapter 18 37 Sulfur Dioxide Emissions Reductions Sulfur dioxide concentration (ppm) 20 40 60 0 Dollars per unit of reduction Marginal Social Cost Marginal Abatement Cost Observations ? MAC = MSC .0275 ? .0275 is slightly below actual emission level ? Economic efficiency improved 169。2020 Pearson Education, Inc. Chapter 18 35 The Costs and Benefits of Reduced Sulfur Dioxide Emissions ?Costs of Reducing Emissions ?Conversion to natural gas from coal and oil ?Emission control equipment ?Benefits of Reducing Emissions ?Health ?Reduction in corrosion ?Aesthetic 169。2020 Pearson Education, Inc. Chapter 18 33 Ways of Correcting Market Failure ?Transferable Emissions Permits ?Permits help develop a petitive market for externalities ? Agency determines the level of emissions and number of permits ? Permits are marketable ? High cost firm will purchase permits from low cost firms 169。2020 Pearson Education, Inc. Chapter 18 31 Ways of Correcting Market Failure ?Summary: Fees vs. Standards ?Standards are preferred when MSC is steep and MCA is flat ?Standards (inplete information) yield more certainty on emissions levels and less certainty on the cost of abatement 169。2020 Pearson Education, Inc. Chapter 18 29 The Case for Standards ?What if standard is used instead and has the same percentage mistake? ?Standard set at 9 instead of 8 ?Increase in social costs and decrease in abatement costs ?Net increase in social costs is smaller than with fees 169。2020 Pearson Education, Inc. Chapter 18 27 Ways of Correcting Market Failure ?Advantages of Fees ?When equal standards must be used, fees achieve the same emission abatement at a lower cost ?Fees create an incentive to install equipment that would reduce emissions further 169。2020 Pearson Education, Inc. Chapter 18 25 The Case for Fines ? What if the regulatory agency forces each firm to cut emissions by 7 units? ?MAC for Firm 1 increases to $ ?MAC for Firm 2 decreases to $ ? This is not cost minimizing because one firm can reduce emissions at a lower cost than the other firm ? Marginal cost of abatement must be equal between firms for reductions to occur at minimum cost 169。2020 Pearson Education, Inc. Chapter 18 23 The Case for Fees ?Assume two firms ?Same marginal social cost curve ?Different marginal abatement cost curves ? MCA1 and MCA2 ?Emissions fees are preferable to standards in this case ?We want to reduce total emissions by 14 units ?The cheapest way to do that is for Firm 1 to reduce by 6 and Firm 2 by 8 units 169。2020 Pearson Education, Inc. Chapter 18 21 Total Abatement Cost Cost is less than the fee if emissions were not reduced. Standards and Fees Level of Emissions Dollars/ Unit of Emissions 3 Total Fe