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Offlinephi1618
old hand

Registered: 02/14/04
Posts: 4,102
Last seen: 6 years, 6 months
Market solutions to externalities
    #2726990 - 05/25/04 11:25 AM (12 years, 6 months ago)

Markets generally assure that benefits are enjoyed by those who incur the expenses to provide them.

However, this is not always the case - costs for benefits are sometimes bourne by someone other than those enjoying the benefits.

An example of this is air polution. When a firm creates waste and freely distributes that waste to its neighbors, its neighbors (the proximity of whom varies with the type of polution) bear part of the cost of producing the firms goods without recieving part of the profit of the firm.

Ideally, there should be some way to make the firms pay for the damages they incur, such that the beneficiaries of the payment are the people who suffer from the externalities. Since the actual damage caused by externalities will sometimes vary by location and is never known for certain, market mechanisms should have some role in the pricing.

To consider a simple situation:
Greenhouse gas (primarily carbon dioxide and methane) emmissions have global impact, but it is hard to determine exactly what costs they are likely to incur. There is a growing body of evidence that global warming is occuring, and it may be that even an immediate and total seccession of greehouse gas emmisions won't avert serious problems. A small minority of informed people believe that there will be no costs.
I think the ideal solution would be to, through a treaty, organize an international organization to implement a greenhouse gas tax, the proceeds from which would provide insurance against possible future costs of global warming. For example, if people were displaced by spreading desearts or rising sea levels, dykes or relocation could be funded indirectly by those who profited from the cause of the warming.
In this case, the largest (of many) difficulty would be setting a price, since we have inadequate information on the likely costs of global warming. However, the price should be uniform, since the location of the emmission of these gasses is irrelavent to their effect.

However, having a uniform greenhouse gas emmissions tax whose proceeds provide insurance against possible disaster seems to me a clearly more sensible solution than complex emmissions limitations agreements.



So, I suggest regulation of marktes is necessary to limit the impact of externalities, but that such regulation should work with the market and use market mechanisms rather than central controll mechanisms.


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InvisibleEvolving
Resident Cynic

Registered: 10/01/02
Posts: 5,385
Loc: Apt #6, The Village
Re: Market solutions to externalities [Re: phi1618]
    #2727982 - 05/25/04 04:12 PM (12 years, 6 months ago)

The biggest problems I see with a tax (in the traditional sense) is that politicians will always think of ways to divert revenue to vote buying schemes. Here's an interesting idea to deal with airborn carbon emmissions, The Sky Trust. One thing that it doesn't address (which I think should be addressed in some way) is that those closest to a source of noxious pollution (I don't consider CO2 to be in this category) generally suffer the greatest effects. Perhaps a variant of this with dividends based on proximity to pollution sources is also a good idea.


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To call humans 'rational beings' does injustice to the term, 'rational.'  Humans are capable of rational thought, but it is not their essence.  Humans are animals, beasts with complex brains.  Humans, more often than not, utilize their cerebrum to rationalize what their primal instincts, their preconceived notions, and their emotional desires have presented as goals - humans are rationalizing beings.


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OfflineTao
Village Genius

Registered: 09/19/03
Posts: 7,935
Loc: San Diego
Last seen: 1 year, 5 months
Re: Market solutions to externalities [Re: phi1618]
    #2728912 - 05/25/04 07:16 PM (12 years, 6 months ago)

Isn't it plainly obvious that there needs to be some sort of regulations/incentives/penalties to prevent a tragedy of the commons?


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InvisibleEvolving
Resident Cynic

Registered: 10/01/02
Posts: 5,385
Loc: Apt #6, The Village
Re: Market solutions to externalities [Re: Tao]
    #2729011 - 05/25/04 07:43 PM (12 years, 6 months ago)

In my eyes, one of the injustices of the current system is the government gets revenue from fining polluters, but actual victims do not get any compensation from the fines. The proceeds from any fines should go to those who suffer at the hands of polluters (minus administrative costs). It is also my understanding (please correct me if I'm wrong, I'm not certain of this) that current pollution laws provide legal cover if a polluter is within legal limits of specified pollutants, making tort action unavailable as a recourse to victims of pollution.


--------------------
To call humans 'rational beings' does injustice to the term, 'rational.'  Humans are capable of rational thought, but it is not their essence.  Humans are animals, beasts with complex brains.  Humans, more often than not, utilize their cerebrum to rationalize what their primal instincts, their preconceived notions, and their emotional desires have presented as goals - humans are rationalizing beings.


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Offlinephi1618
old hand

Registered: 02/14/04
Posts: 4,102
Last seen: 6 years, 6 months
Re: Market solutions to externalities [Re: Evolving]
    #2729041 - 05/25/04 07:51 PM (12 years, 6 months ago)

The only problem I see with the Sky Trust - for greenhouse gasses - is that it would divide the revenues among all Americans, wheras people will be differently affected (if at all) by global warming. Those most likely to be affected are those near the equator or near deserts that might expand, and those on the sea. I think revenues should be put into a fund to provide insurance against the possiblility of a global, warming-related disaster. I also believe they should be accumalated in an international treaty organization, not controlled by governments - this should prevent the revenues from being misappropriated, like those for social security were.

I agree that for noxious polutants, people should be recompensed based on how they are affected. The largest difficulty in many cases is that polutants don't respect political borders - dumping in a river can affect people downstream through a number of political districts, but have little effect on people away from the river; air polution can be affected by weather patterns.

In any case, I think that using market oriented solutions is a better approach than using central controlls for alot of the problems that government is needed to address.

Of course, you're right about vote-buying schemes - there is a big problem in politics that each politician fights to get positive things for their constituancy and donors, with the result that everybody suffers from stupid pork projects.


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OfflineTao
Village Genius

Registered: 09/19/03
Posts: 7,935
Loc: San Diego
Last seen: 1 year, 5 months
Re: Market solutions to externalities [Re: phi1618]
    #2729203 - 05/25/04 08:43 PM (12 years, 6 months ago)

Quote:

there is a big problem in politics that each politician fights to get positive things for their constituancy and donors, with the result that everybody suffers from stupid pork projects.



Of course this could be largely solved if they would only pass a law that parts of a legislation must be germane to the purpose of the legislation.


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Offlinezappaisgod
horrid asshole

Registered: 02/11/04
Posts: 81,741
Loc: Fractallife's gym
Last seen: 6 months, 6 days
Re: Market solutions to externalities [Re: phi1618]
    #2729266 - 05/25/04 09:01 PM (12 years, 6 months ago)

I believe New York and several other Eastern states are suing power plants in Ohio and such because their shit blows here because they tried to finagle the laws about updating old plants when they increased production. Fuck it, they don't want to pay for scrubbers, let them pay us for the shitty air they send our way


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OfflinepB0t
Generic Shroomery Member
Male

Registered: 04/25/03
Posts: 2,556
Loc: San Francisco, CA
Last seen: 5 years, 7 months
Re: Market solutions to externalities [Re: Evolving]
    #2734886 - 05/27/04 02:04 AM (12 years, 6 months ago)

Quote:

Evolving said:
In my eyes, one of the injustices of the current system is the government gets revenue from fining polluters, but actual victims do not get any compensation from the fines. The proceeds from any fines should go to those who suffer at the hands of polluters (minus administrative costs). It is also my understanding (please correct me if I'm wrong, I'm not certain of this) that current pollution laws provide legal cover if a polluter is within legal limits of specified pollutants, making tort action unavailable as a recourse to victims of pollution.




I agree completely.

To partially address your last sentence: I know that where I live there are maximum pollution levels set in place by the government, but firms have a responsibility to do better than these levels if it is obvious that the standard is inadequate for protecting the public. Otherwise, they can be fined and found liable in tort.


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5-MeOW-DMT

yageman said:
Dumb kids shouldnt even worry about trying salvia.

Dumb adults might want to give it a shot though.


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OfflineRedo
CTA

Registered: 04/13/04
Posts: 1,296
Last seen: 11 years, 4 months
Re: Market solutions to externalities [Re: pB0t]
    #2739351 - 05/28/04 12:04 AM (12 years, 6 months ago)

Industries can sell their unused pollution credits to another industries. So, one can pollute more then another can, based on how many credits they have to pollute. This needs to be fixed.


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