Lecture 4 Flashcards Preview

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Flashcards in Lecture 4 Deck (9)
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1
Q

Rent Seeking

A

“Rent seeking” refers to the attempt by interest groups to persuade government officials to pursue options that are beneficial to the group.

2
Q

Coase Theorem Premise

A

Two parties have an incentive to negotiate an economically efficient and mutually advantageous solution to a dispute.

3
Q

Coase Theorem prequisites

A
  • property rights well defined

- zero (or very low) transaction costs

4
Q

Coase Theorem outcome

A

Outcome will be the same no matter who has initial property right

5
Q

Advantage of Coase Theorem

A

Solution is efficient when conditions are right

Government does not need to know MAC or MPD cost

6
Q

Disadvantage of Coase Theorem

A
  • results breaks down with transaction costs (they are almost never zero)
  • Results can break down in the case of damages incurred by many agents, due to nonexcludabilityand nonrivalry.
7
Q

Rent Seeking impacts

A

will lead to government failure and a net wellfare loss

8
Q

Maximizing net social benefit= everyone is better off?

A

NO

9
Q

Government Inteverntions

A

Least Cost Policy
-A solution to market failure is termed a ‘least-cost’ or ‘cost effective” solution if it reduces pollution to E´ at minimum cost. (government does not know MPD or MAC)
–> not efficient
Command and Control:
- The government specifies the amount of emissions from each firm, and usually specifies how the emission reduction is to be obtained.
-the primary criticism of the CAC approach is that it delegates all decision-making authority to the government.
-Government can allocate emissions cost effectively only if it knows the MAC curves of all sources.

So CAC is inefficient at two levels:
• inefficient allocation of pollution across firms;
• imposition of inefficient cost structure