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13 Cards in this Set
- Front
- Back
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Externality |
An untreated or unpriced good or service such that there is excess s or d, the market doesn't clear so outcome isn't PE Violates the assumption of well defined property rights which are required for a PE outcome |
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Types of externality
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- Consumption - smoking/education - Productive - pollution/technology spillovers - Network - the value of something doesn't increase or decrease until its network expands (wifi speed reduced as network expands) or mobile phone value doesn't increase until others join the network so may not be supplied because not enough demand in the early stages |
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Solutions to externalities 1 |
- Assign property rights: couse theorem - a PE outcome will result regardless of how allocate property rights If not at tangency, assign PR and will trade down price line to PE point problem: complex to assign, info imperfections, an increase in BP changes the distribution of benefits |
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Solutions to externalities 2 |
Pigovian tax - levied on activities that generate negative externalities - Set equal to the social cost (the diff bw MPC and MSC at the PE output level) problems: if market power exists, output might already be below PE level and therefore pollution below too, so a tax could worsen the problem but get double dividend effect |
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Tragedy of the commons |
- Multiple agents have access rights - Indiv optimising actions create -ve externalities - if increase n, Q increases Solution: - centralised decision maker - single agent granted access rights (max profit by charging to use resource which reduces other's ability to deplete it) - privatisation |
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Tragedy of the anticommons |
- Multiple agents have exclusion rights - Indiv optimising actions create -ve externalities - if increase n, P increases Solution: - centralised decision maker - single agent granted exclusion rights - nationalisation |
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Buchanan and Yoon (2000) |
Problems are formally equivalent (symmetric) |
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Public good |
Non-rivalrous - the consumption of one unit of the good by one indiv doesn't stop the cons of that unit by another indiv pure - non-rivalrous and non-excludable |
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Private provision |
Creates a particular type of negative externality - indivs have an incentive to free ride (enjoy another's provision of the public good while providing insufficient amounts of the dos themselves) - not PE outcome - good will be under provided |
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PE provision |
where MRS = sum of MRT normalising MC=1 then cold becomes MC=sum MV |
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xp - |
highest quantity any one agent is willing to supply (so no one else will contribute because they are satisfied with this person's provision) |
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Lindahl price |
each agents reservation price for a pure public good - may use to try and reach PE point but indivs have an incentive to lie - dominant strategy is to understate unfair (lamp posts) |
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Vickery Clarke Groves mechanism |
Tax imposed on pivotal agents so that they have the appropriate incentive to not understate their Lindahl price vulnerable to collusion not distributionally fair - one person has to pay tax |
