TKCoase Theorem and C&C

This set of flashcards covers key concepts and implications related to pollution control policy instruments and the Coase Theorem, as discussed in the lecture.

What is the Coase Theorem?

The Coase Theorem states that private bargaining can lead to an efficient resolution of negative externalities without government intervention, provided that property rights are clearly defined.

What must be true for the Coase Theorem to hold?

Bargaining must be easy and inexpensive making transaction costs low

What is an example of applying the Coase Theorem?

Perrier and Vittel paid farmers to adopt less intensive farming practices, thus reducing agricultural runoff and improving water quality.

Describe comand and control regulations

CAC regulations involve environmental regulators specifying the actions firms must take to control pollution, with limited flexibility on how to comply.

What are two types of standards within Command-and-Control regulations?

Technology standards and performance standards.

What is the advantage of technology standards?

They are relatively easy to verify.

What is a disadvantage of performance standards compared to technology standards?

Performance standards require more information to effectively regulate and are more difficult to verify and enforce compliance.

What is an implication of the Coase Theorem?

It highlights the importance of transaction costs and property rights in resolving externalities.

What is a key advantage of Command-and-Control regulations?

They provide greater certainty on the amount of pollution that will be emitted.

What is a significant disadvantage of Command-and-Control regulations?

They can reduce incentives for finding better pollution control methods and are static.

What are the advantages of economic incentives over C&C

Equimarginal principle automatically holds, information requirements are less significant- less monitoring costs, provides incentives for innovation

What are the disadvantages of economic incentives over C&C

May be too complex and impractical- damages from emissions can differ, taxes create political difficulties and create large transfers to regulator

How much do firms invest in new technology in the case of C&C and a tax

Tax: area A+C (between MAC1 & MAC2), C&C: area A.