Pollution and Resource Degradation as Externalities Chapter 3

Pollution and Resource Degradation as Externalities Chapter 3

Overview • Characteristics & types of goods & resources • Externalities • Pollution – Paper & water • Resource degradation – Fishery • Pollution reduction & resource conservation

A Resource Degradation Example: Ocean Fisheries • What types of degradation of ocean resources does this brief video portray? And what causes? • What main trends and patterns do global fisheries statistics show?

State of Fish Selected Fish Stocks, 2004 Csirke (2005)

World Marine Catch, 2004 Csirke (2005)

A Resource Degradation Example: Vessels and Total Catch slope=MBs ($/vessel) slope=MC=$250/vessel Total Cost ($/day)

The Open Access Problem MBp MC MBs

Numerical Example of Sustainable Use • Coastal bay. • Constant marginal cost: 10 tons/boat. • All boats catch same share. • Calculate marginal and average catches (revenues) & graph with cost. • # Boats: Open access equilibrium? Maximum rent? # of Boats 0 1 2 3 4 5 6 7 8 Total Catch (tons) 0 35 60 75 80 75 60 35 0

Public Goods: Barriers to Provision • Why may those bearing external costs not work together effectively to prevent them? • Transaction costs: coordination, negotiation, litigation • Free riding: why incur those costs if you benefit from others’ work or payments?

Public Goods Valuation • For a private good, we sum distinct individual qi demanded at each p (MBi) to market MB, as well as equivalent D, and equilibrium p and q. • For a public good, individuals share the same q, so we sum the individual pi (MBi) they would be willing to pay (if no one else paid) for each unit.

Example: Demand for Private & Public Goods _ ft. (MBs). (MBS)

Another Example • Suppose there are in Green Lake County: – Many acres of endangered wetland habitat available for purchase and conservation for $1, 000/acre. – 1, 000 people with individual MBi = $5–qi/100, where qi is the number of acres conserved. • How many acres would they conserve in the absence of transaction costs or free riding? With some transaction costs and free riding?