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Market Failure (Common Access Resources Non-Excludable, Rivalrous Over…

- - - - Market-Based Solution
        
        Indirect Taxes
        Internalize external costs
        levy a per-unit tax that is equal to MEC
        
        amount of tax variable according to seriousness
        
        Governments can use funds to ease other taxes (tax shift)
        e.g. 2008, British Columbia (A Canadian State) used carbon tax to fund a reduced income tax, allowing it to have one of the lowest corporate income tax rates in Canada. It also reduced personal income tax rates in the two lowest income brackets by 5%. This ensures that income does not change, but incentivizes them to cut back on carbon emissions to decrease taxation
        https://www.jstor.org/stable/23594767?read-now=1&refreqid=excelsior%3A168d528a7f55379b1c68dedb49df2c4a&seq=8#page_scan_tab_contents
        https://blogs.worldbank.org/climatechange/british-columbia-s-carbon-tax-shift-environmental-and-economic-success
        
        Difficulty in measuring MEC, as it is difficult to quantify level of externality
        
        in the absence of compensation, may harm international competitiveness, esp. if major contributors to GDP are taxed
        
        Forces firms to take into account the full social costs of its actions
        incentivizes development of better tech
        reduce external cost
        
        Tradeable Permits
        cap on firms' emissions
        if they exceed, must buy permits
        firms below limit can sell excess permits
        incentive for reduction of emission
        
        incentivizes reduction; increase profits because don't have to pay for more permits and can instead sell permits
        force firms to cheaply cut back on emissions
        
        more effective than taxes by targeting a socially optimal level
        
        encourages clean, green tech
        
        can be administratively costly to trade permits if there are a lot of polluters
        efficient level most be known in the first place
        firms with more financial power see no incentive to cut than smaller firms
        cost could be underestimated, so market failure not fully corrected
        monoplized if smaller firms unable to buy permits
        
        political favortism where government distributes permits unfairly
        
        need to determine amount of pollutants and the cap to be imposed. Information is hard to get; scientists have controbersies over them
      - Legistlation
        control of firms through livenses, standards, laws and administrative rules
        firms have to adhere to government standards e.g. scrubbers, filters
        e.g. 2013, China anti-pollution measures such as compulsory installing of pollution abatement equipment to reduce carbon soot released. Firms unable to meet standards are fined.
        
        easier to operate, outcome is guaranteed
        
        government must inspect regularly
        penaltiy must be severer
        requires large amount of manpower to monitor and enforce
        
        no incentive, so does not make distinction between firms that have higher and lower cost of reduction. so may have no real incentive to cut back.
        
        enforcement issues e.g. cost is underestimated
        
        lack of technical info on pollutants hinders effectiveness
    - - Market-Based Solution
        
        Indirect Taxes
        tax the producers to inrease price, etc.
        
        measurement problems in external cost and hence deciding correct amount
        
        black market
        
        addiction causes PED<1, so consumption not affected by price increase, so very high tax required to correct
        
        worse for lower income groups, eading to greater income inequality
        
        raises government revenue to compensate affected parties
      - Legislation
        e.g. Govenrment Prohibition
        e.g. sale of alcohol to people under 18 is illegal, hence reducing demand
        
        easy to understand and obey
        
        requires manpower for inspection and enforcement
        
        needs severe penalties to be a deterrent
      - Education
        discourage consumption by increasing public awareness
        when peoplpe are aware of the MEC, they might consume the right amount
        
        change consumption habits, truly changes consumer preferences
        
        cost is high
        
        long gestation period
        
        no guarantee of success
  - - - Market-Based Solution
        
        Subsidies
        Internalize benefits
        per-unit subsidy equal to MEB at optimum output
        
        incentivizes good practices
        
        difficult to estimate subsidy deserved by each firm
        
        subsidies have an oppurtunity cost
        reduced G on other areas
      - Public Provision
        Increases supply
        
        Creates jobs and generates income (albeit temporarily)
        
        Cost to government in setting up and running
        
        must have quality in order for others to consume it
        
        difficulty in reading needs of the market
        
        Time lag, implementation lag
    - - Market-Based Solution
        
        Subsidies
        
        permits markets to operate; ensures firms pas benefits to consuers
        
        adjusted in response to seriousness of problem
        
        success depends on accuracy in measuring exact value
        
        Cost; developing countries cannot fund
        
        in developed countries, subsidies may result in taxes, which weakens economy
      - Legislation
        e.g. compulsory polio vaccination for newborns
        
        straightforward, easy to understand
        
        easy to implement
        
        needs to enforce, which may be costly
      - Direct Provision
        e.g. private and public healthcare
        
        quality and quantity decided by government, so it will probably be socially optimum
        
        measurement problems in socially optimum output
        
        financing provision requires higher taxes
        
        denies of choice from private sector, diminishing consumer satisfaction