ECON 2010 Lecture Notes - Lecture 20: Coase Theorem, Externality, Normal Good

• School: CU-Boulder
• Department: Economics
• Course: ECON 2010
• Professor: Alexander Hill

Document Summary

Market failure implies intervention can be efficiency improving. Think of government as a body of people making a decision. Demonization of government forgets benefits of collective for that body action. Coase (if we get property rights correct, then we can come to. Requiring coal plants to have scrubbers in smokestacks. Only certain amount of toxins allowed in water. No dumping of poisonous chemicals in water. No flexibility, regulators are often not as knowledgeable (remember hayek) No need for regulation if you can fix the problem with the market. Flexibility, allow the most knowledgeable to make the decision. Set marginal social benefit and marginal social cost curves together. Find equilibrium and tax to reach that point. Problem in society with admitting pollution can be necessary. Instead of creating distortion, you are reducing it. Implement carbon tax, reduce individual income tax rate. Basic idea: set a quantity limit within an industry and assign permits for that set quantity.