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    320 33 Powerpoint Slides Chapter 15 Externalities Public Goods

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    Prateek Khandelwal

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    320 33 Powerpoint Slides Chapter 15 Externalities Public Goods

    Uploaded by

    Prateek Khandelwal
    100 views8 pages

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    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    100 views8 pages

    320 33 Powerpoint Slides Chapter 15 Externalities Public Goods

    Uploaded by

    Prateek Khandelwal

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 8

    CHAPTER 15

    EXTERNALITIES AND
    PUBLIC GOODS

    Managerial Economics, 2e
    ALL RIGHTS RESERVED
    ©Oxford University
    EXTERNALITIES

    The effect of an economic activity that is not


    incorporated into or reflected in the market price is
    called an Externality
    Externality if negative, imposes a ‘cost’ unaccounted
    for Private cost (eg. fishermen) and social cost (eg. smoke)
    Externality if positive, gives rise to a ‘benefit’ not
    accounted for

    Managerial Economics, 2e
    ALL RIGHTS RESERVED
    ©Oxford University
    EXTERNALITIES (CONTD..)

    Pollution is a negative externality;


    development of an area due to industrial
    units being set up is a positive
    externality

    The result is that costs and benefits are


    either overestimated or underestimated

    Managerial Economics, 2e
    ALL RIGHTS RESERVED
    ©Oxford University
    INTERNALIZING
    EXTERNALITIES
    Government’s response:
    - Pigouvian Taxes – tax is levied on each unit of the output equal to the
    marginal externality produced. Therefore, increase in price has cost has inc.
    – supply shift to left. Tax collected is used to utilize the damage. – Toll tax at
    bridge
    - Regulation – eg. Auto-mobile regulation of pollution that we need to
    check the vehicle.
    - Effluent Fee - At times externality can not be avoided to make economic
    growth so firm buy effluent rights from govt. that this much pollution we can
    make. And that will be utilized by govt. to recover the damage
    - Transferable Emission Permits – Kyoto Protocol, 1992 – scheme was
    that since industry can not be closed a carbon permit will be given to them
    and in response to it they have to do sth. Preserve the env. Eg.- 28 comp. –
    US- 700 mn tonnes CO2 each year so they were given permit. So they
    formed a group – Carbon ring consortium- comprising of these comp. & MN
    Rossfield & E3 int. – these investors brought carbon rights and invested in
    india on pro rata basis to each forest so additional carbon can be made
    - Recycling- govt. incentives to promote- tax free - cola bottle keep
    advance for time till u don’t return glasses ALL RIGHTS RESERVED
    INTERNALIZING
    EXTERNALITIES
    Market’s Response
    - Mergers – In this the firm producing externalities and the entity being
    affected can be merged. Eg. Iron factory & fishermen are from same comp. so
    externality of factory will reduce profit fro fishier and in total profit of the
    comp. Hence a policy will be made so that externality is internalized. But only
    if there r 2-3 entities
    - Social Conventions – Swach Bharat Abhiyan, not playing loud music after
    10.
    - Property Rights: Coase’s Theorem-
    As long as ownership rights are assigned to any one party, bargaining will
    result in socially efficient solution.
    Railways -

    Managerial Economics, 2e
    ALL RIGHTS RESERVED
    ©Oxford University
    PUBLIC GOODS
    Public goods are Non Rival - if one consumer consumes but still the goods can be
    consumed by others. Eg. Defence system.
    Public Goods are Non Excludable - cannot prevent someone to not use – light house, if
    someone was installed it everyone can use u cannot stop them– streetlight -road- bridge.
    The result: no reason for the consumer to reveal his/her valuation of the good or
    service
    HENCE MARKETS FAIL
    for exam – make a matrix 4 situation-
    1.NR – NE – public good
    2.NR – E
    3.R- NE
    4.R - E
    PROVISION OF PUBLIC GOODS

    Government alone being responsible


    for the provision of public goods.
    Public Private Partnerships (P3s)
    Eg. Bridges, Metro are being constructed by both like construction
    comp. like L&T are given tenders – toll tax collected by private share
    given to govt.

    Managerial Economics, 2e
    ALL RIGHTS RESERVED
    ©Oxford University
    PUBLIC PRIVATE
    PARTNERSHIPS (PPP)
    PPPs are contractual arrangements between a
    government and a private party for the provision
    of Assets and the delivery of services that have
    been traditionally provided by the public sector
    The central point is the sharing of decision
    making authority
    The not-so central point is the sharing of rewards
    and risks

    Managerial Economics, 2e
    ALL RIGHTS RESERVED
    ©Oxford University

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