Env Econ & Policy test 2

Public Goods

many people jointly share in its benefits

\-national defense

\-clean air

\-uncongested goods

Are public goods always provided by the government

Not necessarily but often are and for good reasons

Excludability

people can reasonably be prevented from using or enjoying the good

* most things are bought in stores

Rivalry

if one person’s use of the good prevents or diminishes someone else's

* a can of coke

What are most goods

most goods are excludable and rival

Public Goods

goods which are both non-rival and non-excludable

What is the economically efficient level of reduction

\

Public good, economic efficient at…

MC = sum of MB of all parties

Free-riding

one expects to enjoy the benefit of a non-excludable good without contributing to it

Why is it unusual to see a private entity to provide a public good

* Free-riding has people wanting to use it without paying
* it can provide the good first and then make people pay for it as that will make it excludable

Common Property

common pool resources or open access goods

rival but non-excludable

fish in lake, keg at a party

Government Failure

when one person (or untily), the agent, makes decisions on behalf of another person (or entity), the principal, but the agent has an incentive to make decisions that are in his of her own interest, but contrary to the interests of the principal

Who is the agent

An agent is an elected official

Rent-seeking

when special interest groups lobby policy-makers to act on their behalf, without a increase in net benefits to society

eg. taxi licensing

Rational Ignorance

when it is rational ( benefits > cost ) to remain ignorant or not fully informed about relevant issues, candidates, etc. before making a choice

Politics

when the economically efficient action isn’t implemented beacuse it’s not politically popular

eg. most environmental economists who study gasoline

Poor or manipulated economic analysis

when policy-makers make a decision based on poor or manipulated economic analysis

Willingness to Pay (WTP)

the amount of money which, if paid in exchange for a good or service, leaves the person just as well off as without paying and without receiving the good or service

Utility Function

a function which shows how one’s utility (well-being, happiness) “depend” on certain things

Willingness to Accept (WTA)

an amount of money which, if received in exchange ofr a bad thing, leaves the person just as well off as without receiving money and without experience the bad thing

Non-market valuation

is the process of estimating the value of goods and services not traded in markets

eg. a nice view, less smog, animal habitat

Hedonic Pricing Method

compare prices of houses with different environmental amenities

Travel Cost Method

people travel to different recreational sites with different environmental amenities when they do so, they incur different costs

Contingent Valuation

ask people in a survey to make a hypothetical choice that gives a signal about their WTP or WTA

Stated preference

people stating their preferences directly (in survey)

Revealed preference

people did something (bought a house, visited site) which reveals their preferences to the researcher

Non-use values

values people have that do not rely on their use of the good

Benefits Transfer

use value estimates from other studies (with their respective study sites) for the same type of environmental change (eg water clarity improvements) to derive a value estimate for a quality change at a site of interest