18. government & the market
TRANSCRIPT
Environmental Policy
• The environment and production– environmental failures of the market– nature of an environmental policy
• Problems with policy intervention– valuing the environment• financial costs to other users• revealed preference• contingency valuation
– other problems• spatial issues• temporal issues• irreversibility issues
Environmental Policy
• Environmental policy options
–market-based policy: taxation and subsidies
• conflicts with revenue objectives
• redistributive effects
• problems with international trade
• effects on employment
• uses of green taxes in various countries
Environmental Policy
• Environmental policy options (cont.)
– non-market-based policy: command-and-control systems
• approaches to devising CAC systems
– technology-based standards
– ambient-based standards
– social-impact standards
• assessing CAC systems
Environmental Policy
• Environmental policy options (cont.)
– tradable permits
• how tradable permits work
– deciding on permitted levels of pollution
– 'grandfathering'
• their possible use internationally
• advantages
• problems
• Environmental policy in the UK and EU
Car
s pe
r th
ousa
nd p
opu
latio
n
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownership
UK
Car
s pe
r th
ousa
nd p
opu
latio
n
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownership
USA
UK
Car
s pe
r th
ousa
nd p
opu
latio
n
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownership
USAGermany
UK
Car
s pe
r th
ousa
nd p
opu
latio
n
W Germany
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownership
USAGermany
BelgiumSweden
UK
Car
s pe
r th
ousa
nd p
opu
latio
n
W Germany
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownership
USAGermany
BelgiumSweden
UK Spain
Car
s pe
r th
ousa
nd p
opu
latio
n
W Germany
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownership
Transport Policy
• The allocation of road space
– demand for road space
• a derived demand
• determinants of demand
• the price and income elasticities of demand
– supply of road space
• short run
• long run
Transport Policy
• Social optimum level of road usage
– marginal social benefit
– marginal social cost
• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
b
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
Q1
e
MSC
Actual and optimum road usage
MC (private)
a
a
b d
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
Q1
e
Q2
c
Optimumcharge
MSC
Actual and optimum road usage
MC (private)
Transport Policy
• Social optimum level of road usage– marginal social benefit
– marginal social cost• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Identifying a socially optimum level of road building
Transport Policy
• Social optimum level of road usage– marginal social benefit
– marginal social cost• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Identifying a socially optimum level of road building– use of cost–benefit analysis
Transport Policy
• Policy 1: direct provision
– the road solution
– public transport
• Policy 2: regulation and legislation
– restricting car access
• bus and cycle lanes
• no entry to side streets
• pedestrian-only areas
– parking restrictions
Transport Policy
• Policy 3: changing market signals
– extending existing taxes
– road pricing
• variable tolls
• supplementary licences
• electronic road pricing
– subsidising alternative means of transport
Privatisation
• History of privatisation (cont.)– forms of privatisation
• Arguments for privatisation–market forces• greater competition in the goods market
• greater competition for finance
• accountability to shareholders
– reduced government interference
– reducing the PSNCR
– increased share ownership
Privatisation
• Arguments against privatisation
– natural monopolies
– the public interest
• externalities
• fairness and social justice
– problems with the PSNCR
– problems in the valuation of shares
Regulating the Privatised Industries
• Identifying optimum price and output
• Regulation in practice:– the RPI–X formula
• Advantages of UK regulation– discretionary
– flexible
– incentives
• Disadvantages of UK regulation– disincentives of changes to X
– excessive power of regulator?
– alternatively, regulatory capture
– complexity of regulation
Making Privatised Industries more Competitive
• Increasing competition in the privatised industries
– allowing competition where there is no natural monopoly
• limited extent of true natural monopoly
– allowing access to grids by competitors
– forbidding suppliers from being grid owners
– capping market share of established firms
– competitive franchising to make monopolies contestable