Pollution - def. A cost imposed on others without their consent.
A.
Is any damage to the earth pollution?
B.
Is it only irreversible damage to the earth that is pollution?
C.
What about my smoking in class? Would that be pollution? What if I paid you?
D.
Externalities (spillovers), the essential idea - "consequences of actions that the actors don't take into account and that therefore don't influence their decisions."
E.
Pollution and property rights.
1.
The source of the problem: disagreement about property rights.
2.
If everyone agrees that everyone else is acting within their rights, there is no pollution.
a)
Children in a restaurant?
b)
Smoking in a restaurant?
3.
Silence pollution? No aircraft at the local airport? (The noise is a by-product of the production of valued transportation services.)
4.
A conflict between those who would receive the benefits and those who would pay the costs - they are different people.
5.
Do people who grow flowers in Arizona create pollen pollution to hay-fever sufferers?
F.
Whose rights should prevail?
II.
Methods of resolving disputes.
A.
Negotiation
1.
Encourages cooperation
2.
Many disputes can be resolved satisfactorily:
a)
Surf-boarders
b)
Hard of hearing can live near the airport
3.
Property rights must be clearly defined in order for negotiation to work.
4.
Payments can be make to secure cooperation and resolve pollution disagreements.
Smoking in the classroom - could I buy the rights?
B.
Adjudication - discovering the property rights in changing circumstances
1.
Examples:
a)
Copyright laws when duplication equipment is invented
b)
When prop planes turn to jumbo jets
C.
Adjudication attempts to "maintain the continuity of expectations in the presence of changing circumstances."
D.
Legislation - creates changes in existing property rights
III.
Different approaches to pollution control
A.
The Issue of Minimizing Costs
1.
Company A 15,000 units of Yuck $1 cost of reducing each unit
2.
Company B 30,000 units of Yuck $2 cost of reducing each unit
3.
Company C 45,000 units of Yuck $3 cost of reducing each unit
4.
What is the cost of each option?
a)
Putting a 15,000 unit cap on any firm's pollution
(1)
B cuts back by 15,000 (x $2) and C cuts back by 30,000 (x $3) = $120,000 cost
b)
Each company cuts its pollution in half
(1)
A cuts back by 7,500 ($7,500 cost), B cuts back by 15,000 ($30,000 cost), C cuts back by 22,500 (cost $67,500) = $105,000 cost
c)
Each company cuts back 15,000 of pollution:
(1)
A cuts back 15,000 ($15,000 cost), B ($30,000 cost), C ($45,000 cost) = $90,000
d)
Only A & B cut back:
(1)
A cuts back 15,000 ($15,000 cost), B cuts back 30,000 ($60,000 cost) = $75,000
5.
Is it fair to put the burden on A & B and let C pollute without any cutbacks? Is it politically feasible?
B.
Command and control - strict physical limits - the most inefficient method.
C.
Taxation to achieve the correct amount of pollution.
1.
Set the tax equal to the spillover costs. That way, if the benefits of the productive activity exceed the costs, the activity will (and should) take place. If the costs (with the tax) exceed the benefits of the activity, then it will not (and should not) take place.
2.
The money from the tax can be used to compensate the victims of the activity.
3.
The rule: those activities for which the marginal benefits exceed the marginal costs (including spillover costs) should be undertaken. It is a necessary dimension of pollution control to try to discover the marginal costs and benefits in order to properly deal with spillovers.
D.
Fairness issues in pollution control
1.
Are licenses to pollute fair? The wealthy can pollute and the poor must stop.
E.
Efficiency issues in pollution control.
1.
Pollution reduction should be done by those with a comparative advantage in pollution reduction.
2.
The goal is to achieve the desired reduction at the lowest opportunity cost.
3.
Permitting people to exchange permits will accomplish this goal.
4.
Application: The Bubble concept. Are the costs minimized by permitting exchanges?
I. 
A. 
B.