Slide 1Possible InterventionsEconomic IncentivesFocus on case of negative externality and compare:Slide 5Slide 6Slide 7Command and ControlDrawback of C+C:AGEC/FNR 406 LECTURE 15Pesticide Leaching Potential from Field CropsPossible Interventions1. Moral suasion2. Government provision of goods3. Damage prevention4. Command and control5. Economic IncentivesEconomic Incentives1. Tax (per-unit penalty)2. Subsidy (per-unit reward)3. Transferable Permits (market-based)Focus on case of negative externality and compare:1. Command and control (direct regulation)2. Tax3. SubsidyCommand and ControlSet limit on emission or specify technologySMC = PMC + MDQ Q MPMCPMB=SMB MAXPigouvian TaxSet tax = marginal damage rateSMC = MC + taxQMCTax = MDSubsidy Often used in conjunction with technologyMSC (Tech 1)MPC (Tech 1)MPC (Tech 2)MSC (Tech 2)SubsidyCommand and Control1. When monitoring costs are high2. When optimal emission is near zero3. During random or emergency eventsConsists of government-specified rules and regulations, often with fines and charges for violations. Most effective:Drawback of C+C:If marginal abatement costs are different for different pollutors, then C+C will lead to an inefficient allocation of clean up burden among different
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