Lecture #6. Externalities

HTML
DOWNLOAD

Wielkość: px

Rozpocząć pokaz od strony:

Download "Lecture #6. Externalities"

Bogdan Jasiński
8 lat temu
Przeglądów:

1 Lecture #6 Externalities

2 Externalities Externalities (real, technological) arise when an agent (a person, firm, government) influences the production or utility function of another agent. The first agent does not take into account, what influence his/her behavior has on welfare of the second agent. The decision-makers, whose activity influences the utility or production function, do not receive compensation equal to the value of generated benefits or in the case of costs do not pay damages. (Baumol, Oates, 1988)

3 Pecuniary externalities Pecuniary externalities arise when factor or good prices change in the economy. This does not shift the production or utility function. They do not lead to erroneous market allocation in a purely competitive market. They are not (our) externalities.

4 positive (benefits) negative (costs) Externalities production consumption private public

5 EFEKTY EXTERNALITIES ZEWNĘTRZNE POZYTYWNE POSITIVE (KORZYŚCI) (BENEFITS) NEGATYWNE NEGATIVE (KOSZTY) (COSTS) KONSUMPCYJNE PRODUKCYJNE KONSUMPCYJNE PRODUKCYJNE CONSUMPTION PRODUCTION CONSUMPTION PRODUCTION PRYWATNE PRYWATNE PRYWATNE PRYWATNE PRIVATE PRIVATE PRIVATE PRIVATE PUBLICZNE PUBLICZNE PUBLICZNE Argentyna Argentina - Beekeepermięso meat jako as Pszczelarz Orchard - Ogrodnik owner odpad waste Nowa New technologia w Renovation Renowacja technology Hałasujący fabryce A loud of budynku in a factory a buliding sąsiad (zmiejszenie neighbour (decreasing pollution) zan.) PUBLICZNE PUBLIC PUBLIC PUBLIC PUBLIC Fabryka Factory Neighbour Sąsiad zrzucająca dumping podrzucający dropping by ścieki do waste to a his śmieci litter prywatnego private jeziora lake A Fabryka factory zanieczyszacza polluting -jąca powietrze air

6 Quiz with prizes: find and classify the externality (if there is one) Driving a car Vaccinations Planting trees University studies Sandwiches Large-scale farming of animals Expenditure on research and development

7 Calculating externalities TSC = TPC + TEC MSC = MPC + MEC TSB = TPB + TEB MSB = MPB + MEB

8 Koszty zewnętrzne External costs C MSC Ps P* MEC(Q*) MPC MPB=MSB Qs Q* Q

9 External costs P MSC P MPC MSC I MPC I P* Welfare loss P 1 P 1 MEC I q* MEC q 1 Q of a firm Q* Q 1 D Q of the industry

10 Numerical example 2 animal farms Cost function of farm 1 is c(q 1,,Q 2 )=(1+Q 2 )Q 1 2 So MC 1 =2(1+Q 2 )Q 1 A cow costs 12 Farms equalize MC with P, so that: MC 1 =2(1+Q 2 )Q 1 =12 what gives Q 1 =Q 2 =2, revenue of 24 and profit of 12 per farm. Decreasing the output of farm 1slightly does not lower its profits (derivative equal to 0) and increases firm 2 s profits. E.g. prod. Q 1 =Q 2 =1,9 gives profit of 12,331 per firm.

11 Coase Theorem If the following conditions are met: low transaction costs, clearly defined property rights, (there exists an external authority enforcing contracts) income redistribution does not influence marginal values, then: allocation of resources will be identical no matter how property rights are allocated, this allocation will be (Pareto)-efficient, i.e. the problem of externalities will be eliminated.

12 External benefits C MPC=MSC Ps MEB(Q*) P* MSB MPB Q* Qs Q

13 Important example of EB: network externalities many goods in contemporary economy have a network nature i.e. utility depends on other elements of the network (in particular depends, in a positive way, on the number of users) typical examples: telecommunications, IT

14 Network externalities contd. Positive externalities can be restricted to clients of a given firm Examples: Microsoft aims to make it impossible to open Open Office files by MS Office and vice versa High rates for inter-network connections Additionally, firms may increase switching costs (e.g. moving numbers between networks)

15 Re-monopolization in networks Popularization of a given standard and its closing by a firm coupled with high switching costs severely restricts access to the market for other firms a monopoly might arise

16 Theoretical ways to correct an erroneous market allocation Internalization of an externality with the external costs burdening the injurer Remarks: Internalization does not mean burdening the injurers with total external costs, In the social optimum marginal external cost does not have to be equal to 0.

17 Theoretical ways to correct an erroneous market allocation Pigouvian Tax: Imposing a tax equal to the difference between the marginal social cost (MSC) and the marginal private cost (MPC) for the optimum (in the situation of an external cost) or granting a subsidy equal to the difference between the marginal social benefits (MSB) and marginal private benefits (MPB) for the optimum (in the situation of external benefits). PT= MEC(Q s )=MSC(Q s ) MPC(Q p ) PS= MEB(Q s )=MSB(Q s ) MPB(Q p )

Podobne dokumenty

Wykład V. Efekty zewnętrzne

Wykład V. Efekty zewnętrzne Wykład V Efekty zewnętrzne Czynniki powodujące błędną alokację rynkową na rynku konkurencyjnym: Efekty zewnętrzne; Dobra publiczne; Asymetryczna informacja. Efekty zewnętrzne (z ang. external effects,