Incidence of Environmental Regulations Who 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 terms Backward Incidence inputs pay wage earners capital etc Forward Incidence consumers pay Incidence by class income ethnicity geographic region age education etc Regulatory incidence to single firm in competitive market S1 S0 Demand Cost to the individual firm Backward incidence Regulatory incidence to the industry in a competitive market S1 S0 Regulation costs Supply shifts up Price rises quantity declines Demand Electricity Loss to consumers S1 S0 A p1 p0 Old CS A B New CS A Change B B Demand Electricity Loss to producers S1 S0 p1 p0 Demand Electricity Old Producer Surplus S1 S0 p1 p0 Demand Electricity New Producer Surplus Shift down by wedge get net change in PS S1 S0 p1 p0 Demand Electricity SB housing market fixed supply Who pays for a tax on house sales in Santa Barbara county p0 p1 S D0 D1 Houses If buyer pays tax Burden is on seller They see lower price buyer gets same CS S p0 p1 D0 D1 Houses If seller pays tax Burden is on seller They see lower price buyer gets same CS S p0 p1 D0 Houses SB News Press Headline Goleta Developer Fees May Double February 11 2003 Who pays for or benefits from an increase in development fees If supply not fixed tax development Who benefits from a development tax S1 S0 Current homeowners benefit from increased house price p1 p0 D Houses Recall basic approaches to regulation 1 Command Control regulate exactly what can and cannot be done 2 Price Incentives provide financial incentive to do the right thing 3 Marketable Permits fix pollution at a given level let firms trade their rights to pollute Controlling growth C C Zoning building moratoria infrastructure fees growth boundaries water limits costly lengthy permit process difficult building requirements Controlling growth price incentives Property taxes If use revenue to buy parks and schools houses become more desirable Tax on building permits Dollar amount or a percentage Land conversion fee Controlling growth marketable permits Issue 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 cliffs Isla 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 The real question Are residents students better off S p1 p0 Residents Safety Price Landowners Price D1 safe D0 risky Housing Conclusion Examining 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 landlords
View Full Document
Unlocking...