Transcript AGENCY & DISTRIBUTIONAL ISSUES (HIDDEN ECONOMICS) Prof David K. Linnan USC LAW # 666 Unit Five.

AGENCY &
DISTRIBUTIONAL
ISSUES (HIDDEN
ECONOMICS)
Prof David K. Linnan
USC LAW # 666
Unit Five
CONCEPTS
BASIC CONCEPTS BEHIND ENVIRONMENTAL & NATURAL RESOURCE
ECONOMICS
1.
Property rights issues with “environment” as provider of services
a.
Definition, defense & transferability
b.
Public good problems (non-excludability &
non-rivalrous consumption)
c.
Common property problems slightly different
2.
Externalities & free riders
a.
Market failure arguments as justification for
govt/int’l regulation & taxation as cost adjustment
b.
Agency cost issues once decision makers as agents do
not bear full costs
3.
Cost/benefit analysis at policy level
a.
Competing uses & differing social and private
marginal costs (taxes to merge, etc.)
b.
Utilitarian ethics vs public choice approaches)
4.
Economic instruments & idea can guaranty anti-pollution efficiency
if problems resolved, but not distributive justice because most have
hidden distributional consequences (plus prior allocation issues, for
instance fishing quotas)
ECON INSIGHTS I
EFFICIENCY VS DISTRIBUTIVE EFFECTS
1.
Technical arguments about environmental or
natural resource economics as neoclassical
a.
Efficiency-based exercise as
traditional microeconomics
b.
Remember eco-development piece &
chart including economic views
(frontier economics & property rights)?
ECON INSIGHTS II
EFFICIENCY VS DISTRIBUTIVE EFFECTS (CONT’D)
2.
Sustainable development entails what
economic view (“ecological economics”)?
a.
Not efficiency based, but rather
systems approaches measuring nondepletion (inter-generational equity)
b.
Maximizing what, depleteable & nondepleteable effects?
i.
Non-declining well-being (capital
stock)
ii.
Non-declining value of natural
capital
iii.
Non-declining physical service
flows
ECON INSIGHTS III
EFFICIENCY VS DISTRIBUTIVE EFFECTS (CONT’D)
3.
What should be anchor principle as to be
maximized (back to issue of deep ecology,
etc.)
4.
Even staying with neo-classical
microeconomic approaches, does not
address distributional aspects
a.
Issues clear on economic
instruments (taxes vs tradable
permits, etc.)
b.
Both assigning property & wealth
disparities in market mechanism
NAT’L RES ECON I
NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL
MICRO MODEL
1.
Ultimately, conceive of environment as provider of
goods/services (wetlands to filter water, clean air for
O2, etc.)
2.
Valuation issues on environment as “asset,” assuming
ownership as with property rights
a.
Normal vs contingent (non-market)
valuation
b.
Public goods question (who owns
landscape vs the real property parcels)
i.
Non-excludability
ii.
indivisibility
NAT’L RES ECON II
NATURAL RESOURCE ECONOMICS AS NEOCLASSICAL MICRO MODEL (CONT’D)
3.
Supply & demand calculation for efficiency
purposes
a.
Static (single period)
b.
Dynamic (multiple period,
incorporating present value
methodology for comparisons)
c.
Marginal vs average calculations
NAT’L RES ECON III
NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL
MICRO MODEL (CONT’D)
4.
Problem of uncaptured effects in
property right terms
(“externalities”)
a.
“Free” services (pouring untreated pollutants
out of smoke stack)
i.
ii.
b
Benefit (external economy)
Detriment (external
diseconomy)
Attendant issues re calculation & valuation of
harm (remediation vs injury vs?)
NAT’L RES ECON IV
NATURAL RESOURCE ECONOMICS AS
NEO-CLASSICAL MICRO MODEL
(CONT’D)
5. Concept of market failure as traditional
basis for regulation (cannot rely on
property rights to ensure efficient
allocation decision)
6. Free rider issues (incentive questions)
7. Divergence of social & private discount
rates
NAT’L RES ECON V
NATURAL RESOURCE ECONOMICS AS NEO-CLASSICAL
MICRO MODEL (CONT’D)
8.
Cost-benefit analysis for policy planning purposes
a.
Primary vs secondary effects
b.
Tangible vs intangible benefits
c.
Treatment of risk
i.
Probability of particular outcome
ii.
Uncertainty of effect
iii.
Anchoring & misestimation (psych)
iv.
Individual differences re openness to
risk vs risk aversion
v.
Private vs social discount rates in
practice
NAT’L RES ECON VI
NATURAL RESOURCE ECONOMICS AS NEOCLASSICAL MICRO MODEL (CONT’D)
9.
Impact analysis (like engineering study),
typically in face of issues meaning no clarity
on what to maximize so input/output study
10. Non-use or passive use (e.g., biodiversity),
can treat as contingent valuation kind of
problem too, but issue hidden is multiple
possible uses, and change over time
11. Information assymetry problems
ECONOMIC ACTIVITY
WHAT DOES THE BELOW MAP TELL YOU ABOUT
COUNTRIES AND ENVIRONMENTAL
ECONOMICS/ACTIVITY?
http://www.lfip.org/laws666f06/index.htm
NOTE THAT THIS IS ALL IN EFFECT MACRO, WHILE
MUCH OF NATURAL RESOURCE ECONOMICS
MICRO
BUT WHAT ARE CONNECTIONS
INTERNATIONALLY?
ECON INSTRUMENTS I
CONCEPT OF ECONOMIC INSTRUMENTS’ ROLE
1.
Idea of alternative to “inefficient” command & control
approach
2.
Typical alternatives are taxes or tradable permits
a.
Green taxes may allow assigning costs
otherwise skipped as externalities (e.g., excise
taxes on tires to pay for recycling them later,
carbon taxes to pay for GCC abatement costs)
b.
Tradeable permits allow producers with
different remediation costs to remediate vs buy
right to pollute (to create which someone else
remediates)
ECON INSTRUMENTS II
CONCEPT OF ECONOMIC INSTRUMENTS’ ROLE
(CONT’D)
3.
Distributional aspects are introduced in two
ways
a.
Taxation discourages lower income
groups’ consumption (income
elasticity)
i.
Preference for income over
clean air, treat as legitimate?
ii.
Environmental justice problem
writ large, exacerbating effects of
income distribution
ECON INSTRUMENTS III
CONCEPT OF ECONOMIC INSTRUMENTS’ ROLE (CONT’D)
3. Distributional aspects are introduced in two ways
(cont’d)
b.
Permitting requires a prior assignment of
property
i.
Grandfathering vs outright auction,
with the difference whether benefit to
government or private party
ii.
Then creates its own externalities, as
with those residing near highly
polluting facility that buys its way out of
remediation in buying permit to pollute;
unequal remediation locally beyond
lowest cost global efficiency arguments
c.
Differing long & short term impacts on
employees, consumers, etc. via adjustment
cost concept
AGENCY
AGENCY AS ECONOMIC CONCEPT
1. Problem of incentives, assymetric
information & control by principal
(agency costs analysis focusing on
conflicts of interest, costs of
monitoring, etc.)
2. Who does the agent represent, and in
environmental setting how do you
apply agency concept to competing
candidates (government & NGOs both
claiming to represent people or public
interest)?
PROB CONCEPTS
HIDDEN ECONOMIC CONCEPTS IN
PROBLEMS
How to apply the various economic
concepts to the readings and
problems?