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Chapter 5

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Wilfrid Laurier University
Karen Huff

EC238 Chapter 5 – The Economics of Environmental Quality Week 4 The Economics of Environmental Quality -Social efficiency is a normative concept in economics – it is a statement of what “ought to be” -Positive economics is the study of how events actually occur in the real world, how various outcomes come to pass -The quantity of output that actually occurs on a market and its prices are matters of positive economics -In normative policy analysis, a number of steps are generally taken: 1. Identify the target level of environmental quality to achieve 2. Determine how to divide that target level among the many polluters that may contribute to the environmental problem 3. Determine how to dive that target level among the many polluters that may contribute to the environmental problem 4. Address the question of how the benefits and costs of environmental programs are distributed across society and whether this distribution is appropriate The Target Level of Pollution – A General Model -There is no single public policy that can address all the diverse types of environmental problems -The model presents a simple trade-off situation that characterized all pollution-control activities -On the one hand, reducing emissions reduces the damages that people incur from environmental pollution; on the other hand, reducing emissions takes resources that could have been used in some other way, to produce goods and services that people want Pollution Damages -Refers to all the negative impacts that users of the environment experience as a result of the degradation of that environment -Ex. A factory that discharges effluent into a river poisons fish stocks - anglers can no longer eat any fish that they catch -Besides damage to human beings, environmental destruction can have important impacts on various elements of the non-human eco-system -Some of these, such as destruction of genetic information in plant and animal species driven to extinction, will ultimately have important implications for humans -A damage function shows the relationship between the quantity of a waste product and the value of its damages -Different damage functions: -Emission damage functions – show the relationship between the wastes from a particular source or sources and the resulting damages to the environment -Ambient damage functions – show how damages are related to the concentration of a waste product contained in the ambient environment -Marginal damage functions – show the change in damages stemming from a unit change in emissions or ambient concentration -Total damages – the total amount of damage at each possible emission level Marginal Damage Functions: Possible Shapes -See Figure 5.1 p. 71 Marginal Damage Functions: Properties and Analysis -Two assumptions are made: -This is a single, non-accumulative pollutant that is uniformly distributed -No threshold exists; that is, each marginal damage function begins at the origin -See Figure 5.2 p.73 -Marginal damage functions are labelled MD, and emissions labelled E EC238 Chapter 5 – The Economics of Environmental Quality Week 4 -The height of the marginal damage curve shows how much total damages change if there is a small change in the quantity of emissions -Total damages for a given level of emissions is the area under the MD curve from 0 to that level -What factors might account for the difference between MD1 and MD2 might refer to a situation where there are many people who are affected by a pollutant, such as a large urban area, while MD1 could be a more sparsely populated rural area; fewer people, smaller damage Abatement Costs -The cost of reducing the quantity of residuals being
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