Abatement
of Pollution
________________________________________________________________________________________________________________________________________________ abatement: Abatement of pollution is a reduction in
the rates at which gaseous, liquid, or solid wastes are emitted into the
environment. negative externalities: Negative externalities (or “spillovers”) such as pollution are market failures caused when the costs of an activity are incurred by third parties who do not have input into the decision process that yields the activity. External costs are largely ignored by individual private decision-makers. internalization: Internalization is the process of adjusting prices and output to reflect all external costs or benefits. ____________________________________________________________________________________________________________ Pollution (a negative
externality or external cost) can arise from either consumption or
production. Water pollution flows primarily from production processes; air
and noise pollution result about equally from both. For example, both
industrial wastes and the residues from washing dishes flow into sewer
systems and then into our water supplies. Automobiles, smokestack industries,
and coal-fired electricity generation all contribute to the smog that engulfs
many major cities and results in corrosive acid rain that falls on even some
remote regions of our world. Many forms of production generate external costs.
Examples include noise pollution near airports, unsightly billboards and
junkyards, and factories that belch noxious smoke. External
costs cause the private market to oversupply the good because full costs are
not borne by customers. That is, the social costs of production (total
private costs plus any external costs) are not charged to consumers. If
consumers are compelled to pay full costs, less is produced and consumed When
a pollution charge is imposed, producers will seek ways to reduce their level
of pollution if this reduces their total costs, which now include any
external costs. Could
any lone individual reduce, say, pesticide pollution? You might pay farmers
to stop or sue for damages. But lawsuits often involve transaction costs
(attorney fees, etc.) that exceed the damage done. For example, individually
suing all air polluters in If each
buyer of a good pays full production costs, including environmental damages,
then externalities are internalized, yielding optimal amounts of production
and consumption. Consider
such problems as drunk and reckless drivers, loud neighbors who party until
dawn, violent criminals, or litterbugs. These are market failures in the
sense that consumption-based external costs are imposed on other people.
Similar annoyances and dangers might be even more common in a pure
laissez-faire society. Many analysts, however, view these as examples of
government failure because one of government’s basic tasks in a market
economy is to protect broad legal rights to property, which may include
rights to peaceful and tidy neighborhoods and safe streets. Society has tried
to control tendencies to overproduce external bads through zoning, social
regulation, or other legal sanctions. Summary: Purely
private markets produce too much (or too little) of a good when external
costs (or benefits) are present. Externalities cause market failures, because
people tend to weigh their private costs and benefits far more heavily than
the costs borne or benefits received by outsiders. People maximize their
personal welfare by equating the marginal private benefit from an action with
its marginal private costs. This is quite rational, because trying to
identify and negotiate with any potential third parties may be prohibitively costly
and because nonexclusivity for environmental quality would make such
negotiations futile. Thus, market demands mirror marginal private benefits,
while market supplies reflect marginal private costs. Society
tries to compel decision-makers to internalize externalities by assigning
certain legal rights, through taxes or subsidies, or via mandates or
prohibition. Pollutants are the most conspicuous examples of negative
externalities. Firms ideally internalize any pollution costs, so consumers
ultimately pay full production costs: private plus external costs. The growth
and diverse characteristics of pollution have stimulated numerous public
policies. |
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________________________________________________________________________________________________________________________________________________ Author: Ralph Byrns |
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Economics
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