Post on 29-Dec-2015
Government and
the Market
Government and
the Market
Environmental PolicyEnvironmental Policy
• The environment and production– environmental failures of the market– nature of an environmental policy
• Problems with policy intervention– valuing the environment
• financial costs to other users• revealed preference• contingency valuation
– other problems• spatial issues• temporal issues• irreversibility issues
• The environment and production– environmental failures of the market– nature of an environmental policy
• Problems with policy intervention– valuing the environment
• financial costs to other users• revealed preference• contingency valuation
– other problems• spatial issues• temporal issues• irreversibility issues
Environmental PolicyEnvironmental Policy
• Environmental policy options
– market-based policy: taxation and subsidies
• conflicts with revenue objectives
• redistributive effects
• problems with international trade
• effects on employment
• uses of green taxes in various countries
• Environmental policy options
– market-based policy: taxation and subsidies
• conflicts with revenue objectives
• redistributive effects
• problems with international trade
• effects on employment
• uses of green taxes in various countries
Types of environmental taxes and chargesTypes of environmental taxes and charges
Green tax revenues as a % of GDPGreen tax revenues as a % of GDP
Green tax revenues as a % of GDPGreen tax revenues as a % of GDP
Environmental PolicyEnvironmental Policy
• Environmental policy options (cont.)
– non-market-based policy: command-and-control systems
• approaches to devising CAC systems
– technology-based standards
– ambient-based standards
– social-impact standards
• assessing CAC systems
• Environmental policy options (cont.)
– non-market-based policy: command-and-control systems
• approaches to devising CAC systems
– technology-based standards
– ambient-based standards
– social-impact standards
• assessing CAC systems
Environmental PolicyEnvironmental Policy
• Environmental policy options (cont.)
– tradable permits
• how tradable permits work
– deciding on permitted levels of pollution
– 'grandfathering'
• their possible use internationally
• advantages
• problems
• Environmental policy in the UK and EU
• Environmental policy options (cont.)
– tradable permits
• how tradable permits work
– deciding on permitted levels of pollution
– 'grandfathering'
• their possible use internationally
• advantages
• problems
• Environmental policy in the UK and EU
Transport PolicyTransport Policy
• Congestion problems and the impact on society and business
• Congestion problems and the impact on society and business
Passenger transport in Great Britain(percentage of passenger kilometres by road)Passenger transport in Great Britain(percentage of passenger kilometres by road)
Passenger transport in Great Britain(percentage of passenger kilometres by road)Passenger transport in Great Britain(percentage of passenger kilometres by road)
Passenger transport in Great Britain(percentage of passenger kilometres by road)Passenger transport in Great Britain(percentage of passenger kilometres by road)
Passenger transport in Great Britain(percentage of passenger kilometres by road)Passenger transport in Great Britain(percentage of passenger kilometres by road)
Passenger transport in Great Britain(percentage of passenger kilometres by road)Passenger transport in Great Britain(percentage of passenger kilometres by road)
Car
s pe
r th
ousa
nd p
opul
atio
n
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownershipIncrease in car ownership
UK
Car
s pe
r th
ousa
nd p
opul
atio
n
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownershipIncrease in car ownership
USA
UK
Car
s pe
r th
ousa
nd p
opul
atio
n
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownershipIncrease in car ownership
USAGermany
UK
Car
s pe
r th
ousa
nd p
opul
atio
n
W Germany
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownershipIncrease in car ownership
USAGermany
BelgiumSweden
UK
Car
s pe
r th
ousa
nd p
opul
atio
n
W Germany
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownershipIncrease in car ownership
USAGermany
BelgiumSweden
UK Spain
Car
s pe
r th
ousa
nd p
opul
atio
n
W Germany
Energy and Transport in Figures (EC, 2003); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm
Increase in car ownershipIncrease in car ownership
Transport PolicyTransport Policy
• The allocation of road space
– demand for road space
• a derived demand
• determinants of demand
• the price and income elasticities of demand
– supply of road space
• short run
• long run
• The allocation of road space
– demand for road space
• a derived demand
• determinants of demand
• the price and income elasticities of demand
– supply of road space
• short run
• long run
Transport PolicyTransport Policy
• Social optimum level of road usage
– marginal social benefit
– marginal social cost
• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Social optimum level of road usage
– marginal social benefit
– marginal social cost
• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
Actual and optimum road usageActual and optimum road usage
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
MC (private)
Actual and optimum road usageActual and optimum road usage
a
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
Q1
e
Actual and optimum road usageActual and optimum road usage
MC (private)
a
b
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
Q1
e
MSC
Actual and optimum road usageActual and optimum road usage
MC (private)
a
a
b d
O
Co
sts
and
be
nef
its (
£)
MSB
Cars per minute
Q1
e
Q2
c
Optimumcharge
MSC
Actual and optimum road usageActual and optimum road usage
MC (private)
Transport PolicyTransport Policy
• Social optimum level of road usage– marginal social benefit
– marginal social cost• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Identifying a socially optimum level of road building
• Social optimum level of road usage– marginal social benefit
– marginal social cost• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Identifying a socially optimum level of road building
Transport PolicyTransport Policy
• Social optimum level of road usage– marginal social benefit
– marginal social cost• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Identifying a socially optimum level of road building– use of cost–benefit analysis
• Social optimum level of road usage– marginal social benefit
– marginal social cost• congestion costs: time
• congestion costs: monetary
• environmental costs
– socially efficient level of road usage
• Identifying a socially optimum level of road building– use of cost–benefit analysis
Transport PolicyTransport Policy
• Policy 1: direct provision
– the road solution
– public transport
• Policy 2: regulation and legislation
– restricting car access
• bus and cycle lanes
• no entry to side streets
• pedestrian-only areas
– parking restrictions
• Policy 1: direct provision
– the road solution
– public transport
• Policy 2: regulation and legislation
– restricting car access
• bus and cycle lanes
• no entry to side streets
• pedestrian-only areas
– parking restrictions
Transport PolicyTransport Policy
• Policy 3: changing market signals
– extending existing taxes
– road pricing
• variable tolls
• supplementary licences
• electronic road pricing
– subsidising alternative means of transport
• Policy 3: changing market signals
– extending existing taxes
– road pricing
• variable tolls
• supplementary licences
• electronic road pricing
– subsidising alternative means of transport
PrivatisationPrivatisation
• History of privatisation• History of privatisation
Nationalisation and privatisation in the UKNationalisation and privatisation in the UK
Nationalisation and privatisation in the UKNationalisation and privatisation in the UK
Nationalisation and privatisation in the UKNationalisation and privatisation in the UK
PrivatisationPrivatisation
• History of privatisation (cont.)– forms of privatisation
• Arguments for privatisation– market forces
• greater competition in the goods market
• greater competition for finance
• accountability to shareholders
– reduced government interference
– reducing the PSNCR
– increased share ownership
• History of privatisation (cont.)– forms of privatisation
• Arguments for privatisation– market forces
• greater competition in the goods market
• greater competition for finance
• accountability to shareholders
– reduced government interference
– reducing the PSNCR
– increased share ownership
PrivatisationPrivatisation
• Arguments against privatisation
– natural monopolies
– the public interest
• externalities
• fairness and social justice
– problems with the PSNCR
– problems in the valuation of shares
• Arguments against privatisation
– natural monopolies
– the public interest
• externalities
• fairness and social justice
– problems with the PSNCR
– problems in the valuation of shares
Regulating the Privatised IndustriesRegulating the Privatised Industries
• Identifying optimum price and output
• Regulation in practice:– the RPI–X formula
• Advantages of UK regulation– discretionary
– flexible
– incentives
• Disadvantages of UK regulation– disincentives of changes to X
– excessive power of regulator?
– alternatively, regulatory capture
– complexity of regulation
• Identifying optimum price and output
• Regulation in practice:– the RPI–X formula
• Advantages of UK regulation– discretionary
– flexible
– incentives
• Disadvantages of UK regulation– disincentives of changes to X
– excessive power of regulator?
– alternatively, regulatory capture
– complexity of regulation
Making Privatised Industries more CompetitiveMaking Privatised Industries more Competitive
• Increasing competition in the privatised industries
– allowing competition where there is no natural monopoly
• limited extent of true natural monopoly
– allowing access to grids by competitors
– forbidding suppliers from being grid owners
– capping market share of established firms
– competitive franchising to make monopolies contestable
• Increasing competition in the privatised industries
– allowing competition where there is no natural monopoly
• limited extent of true natural monopoly
– allowing access to grids by competitors
– forbidding suppliers from being grid owners
– capping market share of established firms
– competitive franchising to make monopolies contestable