Essay B: A key cause of climate change is the failure of the market system to efficiently allocate
resources to deal with extensive negative externalities, specifically those caused by
carbon- based gases polluting the atmosphere. Provide an economic analysis of each of
the following potential solutions to this market failure:
Environmental taxation
Government regulation
Trading in marketable permits eg carbon credit market
#1 by Right Wing Extremist, Baby at March 9th, 2010
| Quote
The climate is fine, yes, it always changes and sometimes rapidly. We may not like it sometimes, but climate stability is not one of Earth’s features.
Carbon credits are a racket designed to take money from people and make only a few very rich.
#2 by jd61 at March 10th, 2010
| Quote
Markets allegedly fail because a social cost such as pollution or congestion is imposed on persons and not on those who buy or rent the product. But by the universal ethic, pollution which invades the property of others is an act which is morally wrong and outside the market. The pollution of other people’s property is a trespass which, in a free market, requires compensation. This compensation internalizes the cost, eliminating the externality.
The optimal amount of pollution is not zero, but that amount for which the marginal cost of eliminating pollution equals the marginal benefit of less pollution. Normally, the cost of reducing more pollution rises as more pollution is reduced, and the social benefit of eliminating more pollution declines with greater reduction. When polluters compensate others for the damage, then the optimal amount of pollution will tend to take place, as a polluter will weigh the cost of compensation with the cost of pollution reduction. If the transaction costs are low, the affected parties can negotiate an efficient outcome. If there are too many persons affected for negotiations to be effective, then government, acting as an agent for the people, can levy a pollution charge equal, so far as can be measured, to the social cost. Such a charge does not correct a market failure, but rather enhances the market by preventing trespass. Excessive pollution is therefore not a market failure, but a government failure, the failure by government to enforce the property rights of the victims of pollution.
The same analysis applies to congestion externalities. If a large store opens in a neighborhood and there is increased traffic and more congestion, the market has not failed. If the streets were privately owned, the owners would see a profit opportunity and charge higher tolls. If the streets are owned by the government, then congestion implies a failure to charge a toll sufficient to eliminate the congestion. In a congested highway or street, each car imposes a negative externality on the other drivers by increasing the crowding. A toll just high enough to eliminate the congestion is therefore like a pollution charge, and prevents rather than corrects an externality. If a private owner of a highway fails to apply a congestion charge, this is an entrepreneurial failure, since there is no systemic reason to not apply the charge.
The claim of mainstream economic thought that markets fail is not justified. The failures ascribed to externalities, public goods, market structures, asymmetries, injustice, and lack of sustainability, are due to misunderstanding or ignorance of the ethics, governance, and economics of markets. There is plenty of entrepreneurial and human failure, but no inherent systemic market failure.
Free markets never fail.
#3 by Typical Oregon Person at March 13th, 2010
| Quote
Bla bla bla…your teachers are wasting your time.
#4 by Jimmbbo at March 16th, 2010
| Quote
This is total True Believer indoctrination BS.
MGW has nothing to do with any “allocation of market resources” because there is NO proof that it is a crisis.
IMO the author loves the sound of his own bloviating.
#5 by Ben O at March 19th, 2010
| Quote
There is a fundamental difference between environmentalism and science. Environmentalism is an appeal to peoples emotions involving claims like the Earth is dying and gloomy music played over footage of a fish dying or a bird that’s covered in oil.
Science is that which can be independently verified – and man made climate change cannot be verified by anyone who doesn’t have a preconceived faith in it.
Your teacher want’s you to use a ‘man did it’ assertion about climate change to justify a ‘tax is good’ conclusion, which is using junk science to support a political ideology.
#6 by Deco at March 21st, 2010
| Quote
Ixnay.
If it were proven that CO2 caused global warming and that global warming causes droughts, several African nations and/or agricultural collectives could sue the largest US power generators much in the way that states and individuals sued tobacco companies.
There is no failure of the market.
The only failure is the failure to prove man-made global warming.