economics for leaders lesson 7: property rights is the environment different?

Economics for Leaders


Lesson 7: Property Rights

Is the Environment Different?


Commercial

Salmon Fishing


Global Warming

OR

???


Is environmental quality different, or is it like other goods and

services?

Question:


ERP #1: People choose, and

individual choices are the source of social outcomes.

Review:

Is environmental quality scarce? (Does it use resources?)


ERP #2: Choices impose costs; people receive benefits and incur costs when they make decisions.

Review:

Do decisions about the environment have opportunity

costs?


ERP #3: People respond to incentives in

predictable ways.

Review:

Do people’s choices about environmental quality respond

to incentives in predictable ways?


ERP #4: Institutions are the “rules of the game” that

influence choices.

Review:

Are the incentives that influence people’s choices

about environmental quality shaped by the “rules of the

game?


ERP-5: Understanding based on knowledge and evidence imparts value to

opinions.Is this true of opinions about

the environment?

Review:


Activity: The Fish Game


Is environmental quality different, or is it like other goods and

services?

YES!

Question:

But . . .


When Markets Work Well: There is An Exchange of Costs

and Benefits

But . . .


Negative Externalities . . .

. . . . . . CostsCosts that spill over onto people who don’t receive the benefits.


Positive Externalities . . .

. . . BenefitsBenefits that spill over to people who

don’t bear the cost.


Positive ? Negative ?

Might depend which way the wind blows !


The Tragedy of the Commons

Out comes of common ownership

“If everybody owns it, it’s as if nobody owns it.”


The options for eliminating or avoiding the externality

are:

Fines and lawsInternalizing the cost (clean it up yourself)Moral persuasionDefining the property rights and paying the polluter not to pollute


How do we prevent negative externalities from occurring?

Solution to externality problems lies in clearly defined property rights:

Role for government:1. Clear definition of property rights2. Enforce property rights and secure them through the common law

• private tort law in which those who inflict harm on others must stop and make whole

3. Create an enabling legal framework in which property rights are marketable


How clean is clean enough?

????

Captain PlanetCaptain Planet, he's our heroGonna take pollution down to zeroHe's our powers magnifiedAnd he's fighting on the planet's sideCaptain Planet, he's our heroGonna take pollution down to zero

Marginal analysis ? Idiot!


“Clean Up Your Room Before You Can Go Out!”

What will you do:

15 min

15 min

15 min

15 min

Etc.


How clean is clean enough?

MC=MB


Marginal Analysis / Opportunity Cost

“EPA cleanups of superfund

sitescost an

average of $12 billionfor every

cancer case prevented.” “Super Fund Follies”

Dec., 1999

economics for leaders lesson 7: property rights is the environment different?

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