Transcript Potential market good

Governance issues Anatomy of Failure. Ch5
Governance issues Anatomy of Failure. Ch5
Origins of the environmental crisis?
Adam Smith
Rivalness and Excludability
• Non-rival
– My use does not leave less for you
to use
– Market sells for a price,
discouraging use, but social cost of
use = 0, therefore market should not
supply
• Non-excludable
– One person can’t keep another from
using the good
– Consumer will not pay, market will
not supply
Must have a price to work in the free market!
Rival}
Excludable
Non-Excludable
Market Good:
land, timber, fish once
captured, farmed fish,
Open Access Regime:
(misnamed: Tragedy of the
commons)
Oceanic fisheries, timber
etc. from unprotected
forests, waste absorption
capacity, roads (congestible)
Potential market good
Non-rival} (Tragedy of the
“non-commons”)
but inefficient:
patented information,
Pond
Pure Public Good:
climate stability, ozone
layer, clean air/water/land,
Biodiversity, information,
habitat, life support
functions, etc.
“Golden Rule of Publicly held companies:
“Maximization of Shareholder Value”
Rational behavior:
Externalize costs
Influence politics to
Seek subsidies and favors
Marginal disutility
Cost of regulations-OMB report
Annual Cost: $37-43 billion
EPA conservative approach, Consistently
overestimates costs, not considering least
cost approach and technical innovation
Annual Benefits: $121-193
EPA consistently underestimates benefits
USING ACTUAL NOT THEORETICAL
CASES BENEFITS OUTWEIGH COSTS
5:1
Full World or Empty World?
Source:
Ecological
Economics
Principles &
Applications,
Farley and
Daly
ESA Listings and GDP
1400
$10
1200
$9
1000
$8
800
$7
600
$6
400
$5
R2 = 98.4
200
0
1973
$4
$3
1980
1990
2001
Source: The Wildlife Society Technical Review 2003-1.
Grow out of poverty?
Poverty rate vs. GDP per Capita (1996$)
$35,000
20%
18%
$30,000
16%
$25,000
14%
$20,000
12%
$15,000
10%
8%
1
9
5
9
1
9
6
1
1
9
6
3
1
9
6
5
1
9
6
7
1
9
6
9
1
9
7
1
1
9
7
3
1
9
7
5
1
9
7
7
1
9
7
9
1
9
8
1
1
9
8
3
1
9
8
5
1
9
8
7
1
9
8
9
1
9
9
1
1
9
9
3
1
9
9
5
1
9
9
7
1
9
9
9
2
0
0
1
$10,000
per capita GDP (1996$)
poverty rate
Full World or Empty World?
film
Theories of Environmental Change-Flo
Eco-illogical cycle