Econ test 2

Coase Theorem

If property rights are clearly defined and enforceable, and transaction costs are zero, the affected parties can bargain to reach an efficient outcome regardless of who initially holds the rights

Pollution Charges

Make pollution costly, polluter pays principal, product charge (charge for equipment that emits)

Pro con of Product charges

Can reduce excessive output or consumption
Product charge can be difficult to calculate because environmental damage is hard to quantify

Environmental subidies

Pay for each unit of emissions reduced below a baseline

Environmental subsides pro con

Lets firms choose their cleanup method
Higher profits can attract new firms, potentially increasing total industry pollution

Deposit/Refund System

Charge upfront, refund for proper disposal

Deposit/Refund system pro con

Encourage proper disposal with relatively little government supervision and increases the availability of recycled materials
Collection and refund systems require resources, returning products cost time and effort

Tradable pollution permits

Set the quantity and allow trading

Tradable pollution permits pro con

Achieves the emissions cap at minimum total abatement cost under the model’s assumptions
Pollution can concentrate in “hot spots”, tracking emissions trades creates admin costs`

Use Value

Benefit someone receives from using an environmental resource (value a clean lake because you fish and swim there)

Existence Value

Benefit someone receives simply from knowing an environmental resource exists, even if they never use it (Willing to pay to protect an endangered species even though you will never see it)

Damage Function Method

Measures the benefits of an environmental policy by estimating the damage it prevents.

Damage Function method Pro Con

Connects pollution reductions to measurable outcomes, such as fewer damaged crops or acers of forest
Crop damage function only captures crop benefits, not the benefit to society or the environment.

Contingent Valuation Method

Estimating environmental benefits by asking people how much they would be willing to pay for a specific environmental improvement. (Would you be willing to pay 50/year in additional taxes to protect this forest?")

Contingent Valuation Method pro con

Major strength is capturing existence value
Major weakness is potentially biases survey responses. Stated willingness to pay may differ from true willingness to pay.