Environmental Economics and Government Policy

Economists often talk about letting the economy work through the mechanism of the free market versus government control and regulation. Some believe that if the market is allowed to "do its thing" unprohibited and without government interference, then resources will be allocated efficiently, equilibrium will be found, and so on… However, this is not always possible. Of course, government control is not perfect either. Thus, it would seem that at times the market may be more appropriate than the government; other times the government may be needed because the market is not able to function properly; and other times a combination of the two working in unison may provide the best and most effective and efficient answers.

The market may fail if there is, for example, "imperfect market structure" and thus the presence of "monopoly power." In this case then chances are that the prices that are established will be higher than "necessary" and the quantity supplied less than "adequate" to meet the needs and desires of people. The market may also fail if there is the presence of "public goods." This is when something is characterized by being "nonexcludable" and "nonrival." That is to say that anyone who wants to can "consume" the good or service and that everyone can have as much of it as they want, even if they have not paid for the use of it. The presence of "externalities" can also cause the market to be inefficient because the private costs and social costs are not equal. Pollution is one such problem where the market may or may not be able to function "properly," since there seems to be a divergence between individual and collective incentives.

Property rights determine how producers and consumers use enviro...

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...ety where this is possible, but it exists all the same. It is truly despicable that the system would work in such a way as to make polluting more appealing than not polluting. And in fact, is the sum arrived at in the movie of $333 million even large enough? After all this is a company that is worth $28 billion, so to them it may seem like pocket change. No one should be allowed to pollute the environment and yet in finding the efficient ways to do things, pollution will always probably exist, for sometimes the costs of stopping pollution will outweigh the benefits of doing it. In other words, what may end up being the efficient ways of doing things may not always end up being the best for the environment.

References

Tietenberg, Tom. Environmental Economics and Policy. (Second Edition). Reading,

Massachusetts: Addison-Wesley Educational Publishers Inc. 1998.