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Incidence of Environmental RegulationsSome general rulesKey termsRegulatory incidence to single firm in competitive marketRegulatory incidence to the industry in a competitive marketLoss to consumersLoss to producersPowerPoint PresentationSlide 9SB housing market: fixed supplyIf buyer pays tax…If seller pays tax…SB News Press HeadlineIf supply not fixed: tax developmentRecall basic approaches to regulationControlling growth: C&CControlling growth: price incentivesControlling growth: marketable permitsThe Isla Vista cliffsA simple economic modelConclusionIncidence of Environmental RegulationsWho pays for environmental regulations, and how much?Some general rules“Corporations” never pay. Remember, corporations are just paper. People are shareholders and own the corporations.Impose a regulation, shareholders may lose, consumers may gain and lose.Effects ripple through economy.Consumers may benefit from improved environment and pay higher price for goods (e.g. pesticide regulation).Key termsBackward Incidence: inputs pay (wage earners, capital, etc)Forward Incidence: consumers payIncidence by class: income, ethnicity, geographic region, age, education, etc.Regulatory incidence to single firm in competitive marketDemandS0S1Cost to the individual firm:“Backward incidence”Regulatory incidence to the industry in a competitive marketDemandS0S1Regulation  costs:Supply shifts up,Price rises, quantity declines $ElectricityLoss to consumersDemandS0S1Electricity$p0p1ABOld CS: A+BNew CS: AChange: BLoss to producersDemandS0S1Electricity$p0p1DemandS0S1Electricity$p0p1Old Producer SurplusDemandS0S1Electricity$p0p1New Producer SurplusShift down by wedge, get netchange in PS.SB housing market: fixed supplyWho pays for a tax on house sales in Santa Barbara county?$HousesD1D0Sp0p1If buyer pays tax…Burden is on sellerThey see lower price, buyer gets same CS$HousesD1D0Sp0p1If seller pays tax…Burden is on sellerThey see lower price, buyer gets same CS$HousesD0Sp0p1SB News Press Headline“Goleta Developer Fees May Double”February 11, 2003Who pays for or benefits from an increase in development fees?If supply not fixed: tax developmentWho benefits from a development tax?S0S1DHouses$p0p1Current home-owners benefitfrom increasedhouse priceRecall basic approaches to regulation1. Command & Control: regulate exactly what can and cannot be done2. Price Incentives: provide financial incentive to do the “right” thing3. Marketable Permits: fix pollution at a given level, let firms trade their rights to pollute.Controlling growth: C&CZoning, building moratoria, infrastructure fees, growth boundaries, water limits, costly (lengthy) permit process, difficult building requirements.Controlling growth: price incentivesProperty taxes If use revenue to buy parks and schools, houses become more desirableTax on building permits Dollar amount or a percentage Land conversion feeControlling growth: marketable permitsIssue fixed number of building permits per year.May auction them off, give them away, distribute according to previous development.Then allow buying and selling of permits.E.g. “transferable development rights”The Isla Vista cliffsIsla Vista, CA: many houses on eroding sea cliffs; safety concern, eyesore, house stability concern College community, mostly student rentals.Consider a publicly-funded project to shore up the cliffs.Who would benefit from this action?A simple economic model$HousingD0 (risky)D1 (safe)Sp1p0Residents: Safety (+) Price (-)Landowners: Price (+) The real question:Are residents (students) better off?ConclusionExamining incidence can provide a different picture of consequences of environmental regulations.Often not what you’d think.Only requires simple analysis.Often regulations can benefit those already in the game (e.g. IV


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UCSB ESM 204 - Some general rules

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