ECON 101 Lecture Notes - Lecture 13: Club Good, Private Good, Market Failure
Document Summary
Governments, when correcting inefficient allocation of resources, can implement command-control policies regulating behaviour directly, or market-based policies providing incentives so private decision makers choose to solve their own issues. Pollution however is difficult to ban entirely. Regulate, audit and monitory environmentally damaging activities. E. g. environmental protection agency dictates pollution factories can emit. Used to align private incentives with social efficiency. Corrective tax: a tax enacted to correct the effects of a negative externality. Often corrective taxes > regulation as tax gives an incentive to reduce pollution, not just a set level (more efficient) Creates a new scarce resource e. g. pollution permits. A market to trade permits will develop, governed by the forces of demand and supply. As judged by their willingness to pay, the firms that value them most highly will have permits those that can reduce pollution would be willing to sell permits. Ensures firms pay for pollution (due to the cost of the permit itself)
