Market Failures and Environmental Economics

Flashcards on market failures, externalities, and cost-benefit analysis in environmental economics.

What is the focus of Ecological Economics?

Ecological Economics tends to ecologize the economy, viewing it as physical stocks and flows.

What is the focus of Environmental Economics?

Environmental Economics focuses on economizing the environment, treating ecological issues as information to be priced-in.

What is Environmental Economics?

A neoclassical approach to environmental issues focusing on market failures, estimating environment’s value, and internalizing externalities into market prices.

What is market failure?

An unregulated market fails to produce the most beneficial outcome for society, requiring government intervention.

What are some examples of market failures?

Imperfect information, unequal bargaining power, monopoly power, externalities, failure to preserve resources, inadequate public goods, increasing costs of services, fostering inequality.

What are Externalities?

All costs and benefits falling on society not taken into account by market prices.

What is a Negative Externality?

An additional cost for a third party or society not priced-in by buyers and sellers.

What is a Positive Externality?

An additional benefit for a third party or society not priced-in by buyers and sellers.

What is Cost-Shifting?

Ability of market agents to shift costs onto other agents to be more profitable.

What two characteristics define a good?

Rivalrousness and Excludability.

What is Rivalrousness?

Does consuming prevent someone else from consuming it?

What is Excludability?

Is it possible to exclude agents from consuming it?

What are some examples of government failures?

Moral hazard, short termism, regulatory capture, inefficiency, bad policy design, soft budget constraints.

What is Cost-Benefit Analysis (CBA)?

Comparison of all costs and benefits of a policy in monetary units.

How is Monetary Valuation determined?

Can be inferred from market transactions or estimated using contingent valuation methods.

What are economic valuation methods?

Market valuation, cost of illness, replacement cost, revealed preferences, stated preference, value of statistical life.

What is the product of neoclassical epistemology?

Utility theory of value, economy as markets, nature as exchange value.

What is needed to internalize ecosystems' monetary values?

Continuously recalculating values, centralizing information, feeding it into prices via taxes and subsidies.

What is Multi-Criteria Evaluation?

Combines monetary and non-monetary valuation methods.