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Recycling

July 24, 2010 

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\noindent
Eric Rasmusen, Department of Business Economics and Public Policy, Kelley School of Business, Indiana University. BU 438, 1309 E. 10th Street, Bloomington, Indiana,
47405-1701. (812) 855-9219. Fax: 812-855-3354. \href{mailto:erasmuse@indiana.edu}{erasmuse@indiana.edu}, \url{http://rasmusen.org}.

 

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7/26/2010
1
G406, Regulation,
Eric Rasmusen,
erasmuse@indiana.edu
19 November 2009
Environment: Government and Business
1 2
The Town of Cheshire Buyout
Two years after the Environmental Protection Agency accused
the plant's owner, American Electric Power, of violating
the Clean Air Act in this southeast Ohio hamlet, the
company, which is contesting that accusation, is solving at
least some of its problems by buying the town, for $20
3
million.
Over the next few months, all 221 residents of Cheshire
will pack up and leave. The 90 homeowners here will get
checks for about three times the value of houses they
probably could not have sold anyway. In return, they have
signed pledges never to sue the power company for property
damage or health problems.
The Coase Theorem
The idea was never stated as a theorem, or called that, in Coase's
1960 article, which was non-mathematical. But the name caught on. Here
is one statement.
If property rights are well-defined and information is
symmetric and there are no transaction costs,
4
then people will choose efficient actions regardless of
whether there are externalities and regardless of who has
the property rights.
If, in addition, there are no income effects, the actions
chosen will not depend on how the property rights are
allocated.
But see the next slide and
http://rasmusen.org/g406/readings/Savetoby2005.htm and
http://www.savetoby.com/
5
Pollution Taxes
6
7/26/2010
2
7
Emissions Trading
8
1. No trading allowed: Q=40 is the limit
2. Trading allowed: Each firm gets 40 licenses, and can buy from or sell to the other.
9
http://www.epa.gov/airmarkets/trading/so2market/alprices.html
http://www.epa.gov/airmarkets/auctions/2005/05spotbids.html (show this one) 10
11 12
7/26/2010
3
13
Cook on Alcohol
• Taxes constrain trade, creating triangle losses
• But we want trade in alcohol to be constrained,
h i d
14
so a tax there is good.
• How high, though?
Summers Memo: `Dirty' Industries: Just between you and
me, shouldn't the World Bank be encouraging MORE
migration of the dirty industries to the LDCs? I can think of
three reasons:
1. The measurements of the costs of health impairing pollution depends on the
foregone earnings from increased morbidity and mortality. –those are lower in
poor countries
2. The costs of pollution are likely to be non-linear as the initial increments of
15
p y
pollution probably have very low cost. I've always though that underpopulated
countries in Africa are vastly UNDER-polluted… Only the
lamentable facts that so much pollution is generated by non-tradable
industries (transport, electrical generation) and that the unit transport costs of
solid waste are so high prevent world welfare enhancing trade in air pollution
and waste.
3. The demand for a clean environment for aesthetic and health reasons is
likely to have very high income elasticity. The concern over an agent that
causes a one in a million change in the odds of prostrate cancer is obviously
going to be much higher in a country where people survive to get prostrate
cancer than in a country where under 5 mortality is is 200 per thousand.
Polluters in China
When a fertilizer plant in southwestern China tried
to expand production earlier this month, it inadvertently
dumped so much nitrate and ammonia into the local river
that the chemicals killed 440,000 pounds of fish, halted
farm irrigation in the area and poisoned drinking water for
16
g p g
several cities downstream.
Three weeks after the fertilizer-factory spill, the
region around Chengdu is still suffering. Upstream, power
stations have been asked to stop operations to conserve
water. Downstream, residents in the city of Neijiang
continue to line up daily for clean water delivered by fire
trucks.
About the only people who haven't felt any fallout so far: senior officials who run
the polluting factory… "We should have the power to shut down a plant like
that immediately, but we don't," says Pan Yue, deputy director of China's State
Environmental Protection Administration. "We can only fine them, and such a
small amount at that," he said. "They basically decide it's a cost that doesn't
matter.“
Later this week, his agency plans to introduce a policy that, if implemented,
would hold officials accountable for spoiling the environment. Under the policy,
17
Chinese officials who fail to clean up local pollution and water, or to introduce
other measures to make the environment more livable, would be docked points
in job-performance evaluations. ... A poor rating could hurt officials' chances for
promotion.
"China doesn't lack laws and regulations. The problem is enforcement," says
Wang Yongchen, founder of Green Earth Volunteers, a nongovernmental group
based in Beijing.
Nukes and the EPA
The upgrading of the older Minuteman III missiles has been
under way for nearly a decade now. The air force has also
replaced decades old solid fuel rockets in its missiles…
18
The first six test flights have shown that the new and improved
missiles are less accurate and had shorter range than the
missiles they replaced. … The shorter range can be
attributed to Environmental Protection Agency (EPA)
regulations. The old motors did not have to comply with
EPA rules, the replacement ones do. This meant the new
rocket motors were heavier, which resulted in shorter range.
 
Codfish Game
Spreadsheet
 
Source: http://en.wikipedia.org/wiki/Atlantic_cod
The Codfish
•
The codfish lays ten thousand eggs.
The homely hen lays one.
The codfish never cackles
To tell you when she's done.
And so we scorn the codfish.
The humble hen we prize.
Which only goes to show you:
It pays to advertise.

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DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP

'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration
of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:

1) The measurements of the costs of health impairing pollution depends on the foregone earnings from
increased morbidity and mortality. From this point of view a given amount of health impairing pollution
should be done in the country with the lowest cost, which will be the country with the lowest wages. I
think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable
and we should face up to that.


2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have
very low cost. I've always though that under-populated countries in Africa are vastly UNDER-polluted,
their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the
lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical
generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing
trade in air pollution and waste.

3) The demand for a clean environment for aesthetic and health reasons is likely to have very high
income elasticity. The concern over an agent that causes a one in a million change in the odds of
prostrate cancer is obviously going to be much higher in a country where people survive to get prostrate
cancer than in a country where under 5 mortality is is 200 per thousand. Also, much of the concern over
industrial atmosphere discharge is about visibility impairing particulates. These discharges may have
very little direct health impact. Clearly trade in goods that embody aesthetic pollution concerns could be
welfare enhancing. While production is mobile the consumption of pretty air is a non-tradable.

The problem with the arguments against all of these proposals for more pollution in LDCs (intrinsic rights
to certain goods, moral reasons, social concerns, lack of adequate markets, etc.) could be turned around
and used more or less effectively against every Bank proposal for liberalization.

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{\bf  Questions You Should Be Able to Answer}

    

 


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{\bf  Terms to Know}

 
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{\bf  Homework Questions}

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