A Neoclassical Perspective on Pollution How to internalize the costs incurred by others? Value the natural environment? Too difficult Proxy: Cost of clean up pollution happens, then clean it up. Is there damage that cannot be resolved? Impacts: higher prices; lower quantities; lower profits; fewer jobs (the social costs of internalizing externalities) |\\|OC|aSS|Ca| COlTE'CI Negotiate or Courts (liability rules) Subsidize new, pollution reduction technologies increases production, and potentially, more pollution Cap and trade Tax emissions carbon tax Command and control i.e., regulation Liberal Economy Another perspective on the issue - cross-border - regionalational/international impacts of pollution Are social interests are ignored in private decisions? If so, how can they be resolved? Is the Neoclassical approach to solving the problem (if there is one) the only approach? Has the Neoclassical perspective been used in all cases? Examples? . Pollution o Parks o Roads . Legal systemLiberal Liberal perspective: Rejects equal power of consumers and producers Producers distort markets e.g., marketing distort costs and benefits Diseconomies (externalities) become a social costtherefore a rolefor government representing consumerfpublic interests Distortions of consumer behaviour have social costs therefore a role for government representing consumer/\"public interests Liberal Economy cont'd E.g., Ontario negotiating the pollution costs imposed on New York State Courts? Direct controlstechnological requirements- enforceable compliance ?Best? least cost; greatest reduction in pollution - ?necessarily solve the problem? Radical Perspectives From the Neoclassical perspective, private motives dominate social impacts Capitalism's Primary Motive is to increase private profits and reduce private costs even if it means increasing public/social costs From a Radical perspective, solutions that compromise the private motives will be opposed- capitalists' interests prevail Capitalism's record on reducing environmental damage- poor - could the dominant Neoclassical ideas (see Keynes's quote at the beginning of this lecture) be at the heart of our failure in effectively addressing environmental issues? Solutions require getting beyond cost/benefit (a market perspective) Real issue: Quantity produced - from the Radial perspective, requires direct social control