In this chapter, look for the answers to these questions:

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0 10 Externalities 外部性 This chapter is slightly below average in length, and, for most students, in difficulty. For variety, this PowerPoint presentation uses different examples from the textbook in its analysis of externalities.

1 In this chapter, look for the answers to these questions:
What is an externality? Why do externalities make market outcomes inefficient? What public policies aim to solve the problem of externalities? How can people sometimes solve the problem of externalities on their own? Why do such private solutions not always work? 什么是外部性？ 为什么外部性的存在使市场结果无效率? 什么公共政策能够解决外部性问题？ 人们有时如何自己来解决外部性问题？为什么私人解决方法并不总是有效？ 1

2 Introduction One of the principles from Chapter 1: Markets are usually a good way to organize economy activity. In absence of market failures, the competitive market outcome is efficient, maximizes total surplus. One type of market failure: externality, the uncompensated impact of one person’s actions on the well-being of a bystander. Externalities can be negative or positive, depending on whether impact on bystander is adverse or beneficial. 第一章的经济学十大原理之一： 市场通常是一种组织经济活动的好方法 如果没有市场失灵，竞争市场的结果是有效率的，并最大化了总剩余 一种市场失灵： 外部性：一个人的行为对旁观者福利的无补偿的影响 外部性有负外部性或正外部性之分，这取决于对旁观者福利的影响是有利的还是不利的 EXTERNALITIES 2

3 Introduction Self-interested buyers and sellers neglect the external costs or benefits of their actions, so the market outcome is not efficient. Another principle from Chapter 1: Governments can sometimes improve market outcomes. In presence of externalities, public policy can improve efficiency. 由于自利的买者与卖者忽略了他们行为的的外部成本或收益，因此市场结果没有效率 经济学十大原理之一： 政府行为有时可以改善市场结果 在存在外部性的情况下，公共政策能提高效率 EXTERNALITIES 3

4 Examples of Negative Externalities
Air pollution from a factory The neighbor’s barking dog Late-night stereo blasting from the dorm room next to yours Noise pollution from construction projects Health risk to others from second-hand smoke Talking on cell phone while driving makes the roads less safe for others EXTERNALITIES 4

5 Recap of Welfare Economics
1 2 3 4 5 10 20 30 Q (gallons) P $ The market for gasoline The market eq’m maximizes consumer + producer surplus. Supply curve shows private cost, the costs directly incurred by sellers. $2.50 25 Demand curve shows private value, the value to buyers (the prices they are willing to pay). For many students, the concepts are easier to learn in the context of a specific example with numerical values. Note that maximizing consumer + producer surplus is NOT the same as maximizing TOTAL surplus when the trades impose external costs (or benefits) on bystanders. EXTERNALITIES 5

6 Analysis of a Negative Externality
1 2 3 4 5 10 20 30 Q (gallons) P $ The market for gasoline Social cost = private + external cost external cost Supply (private cost) External cost = value of the negative impact on bystanders = $1 per gallon (value of harm from smog, greenhouse gases)烟雾，温室气体等造成的损害的价值 EXTERNALITIES 6

7 Analysis of a Negative Externality
1 2 3 4 5 10 20 30 Q (gallons) P $ The market for gasoline The socially optimal quantity is 20 gallons. Social cost S At any Q < 20, value of additional gas exceeds social cost. At any Q > 20, social cost of the last gallon is greater than its value to society. D “At any Q < 20, value of additional gas exceeds social cost.” For example, at Q = 10, the value to buyers of an additional gallon equals $4, while the social cost is only $2. Therefore, total surplus (society’s well-being) would increase with a larger quantity of gas. “At any Q > 20, social cost of the last gallon is greater than its value.” For example, at Q = 25 - the market equilibrium - the last gallon cost $3.50 (including the external cost) but the value of it to buyers was only $ Hence, total surplus would be higher if Q were lower. Only at Q = 20 is society’s welfare maximized. 25 EXTERNALITIES 7

8 Analysis of a Negative Externality
1 2 3 4 5 10 20 30 Q (gallons) P $ The market for gasoline Market eq’m (Q = 25) is greater than social optimum (Q = 20). Social cost S One solution: tax sellers $1/gallon, would shift S curve up $1. D 25 EXTERNALITIES 8

9 “Internalizing the Externality”
Internalizing the externality: altering incentives so that people take account of the external effects of their actions In our example, the $1/gallon tax on sellers makes sellers’ costs = social costs. When market participants must pay social costs, market eq’m = social optimum. (Imposing the tax on buyers would achieve the same outcome; market Q would equal optimal Q.) 外部性内在化：改变激励，以使人们考虑到自己行为的外部效应 在我们的例子中，对卖者征税$1/每加仑使卖者的成本 = 社会成本 当市场参与者必须支付社会成本时， 市场均衡= 社会均衡 (对买者征税也能达到相同的结果；市场均衡量等于社会最优量） The parenthetical remark at the bottom of the slide follows from a lesson in Chapter 6: tax incidence and the allocation of resources is the same whether a tax is imposed on buyers or sellers. EXTERNALITIES 9

10 Examples of Positive Externalities
Being vaccinated against contagious diseases protects not only you, but people who visit the salad bar or produce section after you. 接种预防传染病的疫苗不仅保护你自己，而且也保护在你之后到沙拉吧或者生产部门的人 R&D creates knowledge others can use.研究与发展创造出了别人也可以使用的知识 People going to college raise the population’s education level, which reduces crime and improves government.人们上大学提高了教育水平，并减少了犯罪和改善了政府 The textbook explains that a better educated population makes more informed voting decisions and elects higher quality lawmakers and leaders. Thank you for not contaminating the fruit supply!感谢你没有污染水果的供应！ EXTERNALITIES 10

11 Positive Externalities
In the presence of a positive externality, the social value of a good includes private value – the direct value to buyers external benefit – the value of the positive impact on bystanders The socially optimal Q maximizes welfare: At any lower Q, the social value of additional units exceeds their cost. At any higher Q, the cost of the last unit exceeds its social value. 在存在正外部性的情况下，一种物品的社会价值包括： 私人价值– 对于买者的直接价值 外部利益–正外部性对于旁观者的价值 社会最优数量是社会福利最大 化： 低于社会最优数量，增加一单位物品的社会价值大于它的成本 高于社会最优数量，最后一单位物品的成本高于它的社会价值 Since you have just walked students through the analysis of a negative externality, let’s see if they can do the analysis of a positive externality. This slide provides the introductory information they will need to do the analysis. The following slide provides the exercise. EXTERNALITIES 11

12 A C T I V E L E A R N I N G 1 Analysis of a positive externality
10 20 30 40 50 P Q $ The market for flu shots流感疫苗市场 External benefit = $10/shot Draw the social value curve. Find the socially optimal Q. What policy would internalize this externality? S D 12

13 A C T I V E L E A R N I N G 1 Answers
Socially optimal Q = 25 shots. To internalize the externality, use subsidy = $10/shot. 10 20 30 40 50 P Q $ The market for flu shots流感疫苗市场 external benefit S 25 Social value = private value + $10 external benefit D 13

14 Effects of Externalities: Summary
If negative externality market quantity larger than socially desirable If positive externality market quantity smaller than socially desirable To remedy the problem, “internalize the externality” tax goods with negative externalities subsidize goods with positive externalities 如果存在负外部性 市场生产的数量大于社会合意的数量 如果存在正外部性 市场生产的数量小于社会合意的数量 为了解决这个问题，可以使“外部性内在化” 对有负外部性的物品征税 对有正外部性的物品补贴 EXTERNALITIES 14

15 Public Policies Toward Externalities
Two approaches: Command-and-control policies regulate behavior directly. Examples: limits on quantity of pollution emitted requirements that firms adopt a particular technology to reduce emissions Market-based policies provide incentives so that private decision-makers will choose to solve the problem on their own. Examples: corrective taxes and subsidies tradable pollution permits 两种方法： 命令与控制政策：直接管制 例如： 限制排放的污染数量 强制企业采取某种技术来减少排放量 以市场为基础的政策：向私人决策者提供由他们自己来解决问题的激励。 矫正性税收与补贴 可交易的污染许可证 EXTERNALITIES 15

16 Corrective Taxes & Subsidies矫正性税收与补贴
Corrective tax: a tax designed to induce private decision-makers to take account of the social costs that arise from a negative externality Also called Pigouvian taxes after Arthur Pigou ( ). The ideal corrective tax = external cost For activities with positive externalities, ideal corrective subsidy = external benefit 矫正税：旨在引导私人决策者考虑负外部性引起的社会成本的税收 这种税也被称为庇古税，它是以最早主张采用这种税收的经济学家阿瑟·庇古（Arthur Pigou， ）的名字命名的 理想的矫正税= 外部成本 对于有正外部性的活动，理想的矫正补贴=外部利益 Greg Mankiw’s blog ( has semi-regular posts on Pigou taxes, some of which are worth using in class (either as assigned or recommended reading or fodder for class discussion). On the main page, look under “A Few Timeless Posts” for “the Pigou Club Manifesto.” In the textbook, a new “In the News” box includes Mankiw’s 2007 New York Times piece arguing for carbon taxes to fight global warming. The piece contrasts corrective taxes with regulations and with cap-and-trade systems. EXTERNALITIES 16

17 Corrective Taxes & Subsidies
Other taxes and subsidies distort incentives and move economy away from the social optimum. Corrective taxes & subsidies align private incentives with society’s interests make private decision-makers take into account the external costs and benefits of their actions move economy toward a more efficient allocation of resources. 其他税收与补贴会扭曲激励，并使经济远离社会最优数量 矫正性税收与补贴 使私人激励与社会的利益结合在一起 使私人决策者做决策时考虑到他们行为的外部利益与外部成本 使经济向一个资源配置更有效率的方向移动 EXTERNALITIES 17

18 Corrective Taxes vs. Regulations矫正性税收与管制
Different firms have different costs of pollution abatement. Efficient outcome: Firms with the lowest abatement costs reduce pollution the most. A pollution tax is efficient: Firms with low abatement costs will reduce pollution to reduce their tax burden. Firms with high abatement costs have greater willingness to pay tax. In contrast, a regulation requiring all firms to reduce pollution by a specific amount not efficient. 不同企业削减污染的成本不同 有效率的结果：减排成本最低的企业减少最多的污染 污染税是有效率的： 减排成本低的企业会减少污染，进而降低税收负担 减排成本高的企业更愿意支付税收. 管制需要所有企业都减少一定数量的污染，这是没有效率的 Some of your students may not know that pollution “abatement” simply means taking measures to cut pollution. Regarding the last bullet point: If all firms must reduce emissions by a fixed amount (or fixed percentage), then abatement is NOT concentrated among firms with the lowest abatement costs, and so the total cost of abatement will be higher. EXTERNALITIES 18

19 Corrective Taxes vs. Regulations
Corrective taxes are better for the environment: The corrective tax gives firms incentive to continue reducing pollution as long as the cost of doing so is less than the tax. If a cleaner technology becomes available, the tax gives firms an incentive to adopt it. In contrast, firms have no incentive for further reduction beyond the level specified in a regulation. 矫正性税收对环境更有利： 矫正性税收给企业以激励，使他们减少污染，只要减少污染的成本低于税收 如果清洁技术可用，税收给企业去采用这种技术的激励 作为对比，管制并没有给已经减少一定数量污染的企业继续减排的激励 EXTERNALITIES 19

20 Example of a Corrective Tax: The Gas Tax
The gas tax targets three negative externalities: Congestion The more you drive, the more you contribute to congestion. Accidents Larger vehicles cause more damage in an accident. Pollution Burning fossil fuels produces greenhouse gases. 汽油税的目标在于消除三种负外部性： 拥挤 你驾车越多，你对拥挤的贡献便越大 车祸 一辆更大的车在车祸中造成的损害也更大 污染 燃烧矿物燃料会排放出温室气体 Again, see Mankiw’s blog for more well-argued opinion pieces by him and others in favor of gas or carbon taxes. EXTERNALITIES 20

21 A C T I V E L E A R N I N G 2 A. Regulating lower SO2 emissions
Acme and US Electric run coal-burning power plants. Each emits 40 tons of sulfur dioxide per month, total emissions = 80 tons/month. Goal: Reduce SO2 emissions 25%, to 60 tons/month Cost of reducing emissions: $100/ton for Acme, $200/ton for USE Policy option 1: Regulation Every firm must cut its emissions 25% (10 tons). Your task: Compute the cost to each firm and total cost of achieving goal using this policy. Acme公司与美国电气公司都用煤做燃料，每家公司每个月排放40吨的SO2，总排放量=80吨/每月 目标：减少25%的SO2排放，实现60 吨/每月的排放目标 减少排放的成本：Acme公司$100/每吨，美国电气公司$200/每吨 政策选项 1：管制 每个企业必须减少25%的排放（10吨） 你的工作：计算每个企业的成本和使用管制政策完成目标的总成本 This first exercise is simple. 21

22 A C T I V E L E A R N I N G 2 A. Answers
每个企业必须减少10吨SO2的排放 减少排放的成本：Acme公司$100/每吨，美国电气公司$200/每吨 计算每个企业的成本和使用管制政策完成目标的总成本： Acme公司的成本：(10 吨) x ($100/每吨) = $1000 美国电气公司的成本： (10 吨) x ($200/每吨) = $2000 完成目标的总成本 = $3000 Each firm must reduce emissions by 10 tons. Cost of reducing emissions: $100/ton for Acme, $200/ton for USE. Compute cost of achieving goal with this policy: Cost to Acme: (10 tons) x ($100/ton) = $1000 Cost to USE: (10 tons) x ($200/ton) = $2000 Total cost of achieving goal = $3000 22

23 A C T I V E L E A R N I N G 2 B. Tradable pollution permits可交易的污染许可证
最初，Acme公司与美国电气公司每个月分别排放40吨的SO2 目标：减少SO2的排放，实现60 吨/每月的排放目标 政策选项 2：可交易的污染许可证 发放总共60吨的污染许可证，每个企业分别发放30吨。建立可交易的污染许可证市场 每个企业既可以用光它的许可证，排放30吨;也可以排放小于30吨的SO2，然后出售剩余的许可证；或者购买许可证，排放大于30吨的SO2 你的工作：如果Acme公司排放20吨SO2，然后以$150/每吨的价格出售10吨的许可证给美国电气公司。计算在这种情况下完成排放目标的成本 Initially, Acme and USE each emit 40 tons SO2/month. Goal: reduce SO2 emissions to 60 tons/month total. Policy option 2: Tradable pollution permits Issue 60 permits, each allows one ton SO2 emissions. Give 30 permits to each firm. Establish market for trading permits. Each firm may use all its permits to emit 30 tons, may emit < 30 tons and sell leftover permits, or may purchase extra permits to emit > 30 tons. Your task: Compute cost of achieving goal if Acme uses 20 permits and sells 10 to USE for $150 each. 23

24 A C T I V E L E A R N I N G 2 B. Answers
目标：减少排放量，实现60 吨/每月的排放目标 减少排放的成本：Acme公司$100/每吨，美国电气公司$200/每吨 计算完成目标的成本： Acme公司 以$150/每吨的价格出售10吨的许可证给美国电气公司，得到$1500 使用20吨的许可证，排放20吨的SO2 花费$2000减少20吨的排放 Acme公司的净成本：$ $1500 = $500 Goal: reduce emissions from 80 to 60 tons Cost of reducing emissions: $100/ton for Acme, $200/ton for USE. Compute cost of achieving goal: Acme sells 10 permits to USE for $150 each, gets $1500 uses 20 permits, emits 20 tons SO2 spends $2000 to reduce emissions by 20 tons net cost to Acme: $ $1500 = $500 continued… 24

25 A C T I V E L E A R N I N G 2 B. Answers, continued
目标：实现60 吨/每月的排放目标 减少排放的成本：Acme公司$100/每吨，美国电气公司$200/每吨 美国电气公司： 从Acme公司购买10吨的排放许可证，花费$1500 使用购买的10吨许可证和最初的30吨许可证，排放40吨的SO2 没有花钱在减排上 美国电气公司的净成本 = $1500 完成目标的总成本 = $500 + $1500 = $2000 按照可交易的许可证政策，可以以更低的总成本完成目标，并且每个企业的成本都低于管制政策下的成本 Goal: reduce emissions from 80 to 60 tons Cost of reducing emissions: $100/ton for Acme, $200/ton for USE. USE buys 10 permits from Acme, spends $1500 uses these 10 plus original 30 permits, emits 40 tons spends nothing on abatement net cost to USE = $1500 Total cost of achieving goal = $500 + $1500 = $2000 Using tradable permits, goal is achieved at lower total cost and lower cost to each firm than using regulation. 25

26 Tradable Pollution Permits
A tradable pollution permits system reduces pollution at lower cost than regulation. Firms with low cost of reducing pollution sell whatever permits they can. Firms with high cost of reducing pollution buy permits. Result: Pollution reduction is concentrated among those firms with lowest costs. 可交易的污染许可证制度能比管制以更低的成本降低污染 减少污染成本低的企业可以出售他们的污染许可证 减少污染成本高的企业可以购买污染许可证 结果：污染的减少主要集中在那些降低污染成本低的企业 EXTERNALITIES 26

27 Tradable Pollution Permits in the Real World
SO2 permits traded in the U.S. since 1995. Nitrogen oxide permits traded in the northeastern U.S. since 1999. Carbon emissions permits traded in Europe since January 1, 2005. As of June 2008, Barack Obama and John McCain each propose “cap and trade” systems to reduce greenhouse gas emissions. 美国SO2 污染许可证从1995年便开始可以进行交易 在美国东北部，氮氧化物污染许可证从1999年开始可以进行交易 欧洲从2005年1月开始允许碳排放量的交易 在2008年1月，巴拉克·奥巴马和约翰·麦卡恩分别一个提出“限制和贸易”方案来减少温室气体的排放 Nitrogen oxides increase ground-level ozone, which has adverse health effects. For more information, see For information about Europe’s new carbon emissions trading program, see the Financial Times article featured in this chapter’s new “In the News” box. You can also find lots of good articles on this program at the website of the Financial Times, Under Obama’s cap-and-trade proposal, permits will be auctioned to polluters. As Mankiw notes in his New York Times piece reprinted in the textbook, such a system is equivalent to a tax. In contrast, under McCain’s proposed cap-and-trade system, “permits will eventually be auctioned…” (my emphasis). EXTERNALITIES 27

28 Corrective Taxes vs. Tradable Pollution Permits
Like most demand curves, firms’ demand for the ability to pollute is a downward-sloping function of the “price” of polluting. A corrective tax raises this price and thus reduces the quantity of pollution firms demand. A tradable permits system restricts the supply of pollution rights, has the same effect as the tax. When policymakers do not know the position of this demand curve, the permits system achieves pollution reduction targets more precisely. 像大多数需求曲线一样，企业对污染的需求也是污染价格的减函数 矫正税税收增加了污染的价格，因此也减少了企业污染需求的数量 可交易的污染许可证制度限制了供给污染的权利，与税收也同样的效果 当政策制定者不知道需求曲 线的位置时，这种许可证制 度能更好的达到减少污染的 目标 EXTERNALITIES 28

29 Objections to the Economic Analysis of Pollution
一些政客以及许多环保主义者宣称:没有人拥有“购买”污染的权利，也不能对环境标价 然而，人们面临权衡取舍。清新的空气与清洁的水的价值必须与它们的成本进行比较 以市场为基础的方法降低了保护环境的成本，因此能增加公众对于清洁环境的需求 Some politicians, many environmentalists argue that no one should be able to “buy” the right to pollute, cannot put a price on the environment. However, people face tradeoffs. The value of clean air & water must be compared to their cost. The market-based approach reduces the cost of environmental protection, so it should increase the public’s demand for a clean environment. EXTERNALITIES 29

30 Private Solutions to Externalities
Types of private solutions: Moral codes and social sanctions, e.g., the “Golden Rule” Charities, e.g., the Sierra Club Contracts between market participants and the affected bystanders 私人解决方法的类型： 道德规范和社会约束 比如：“金科玉律” 慈善行为，比如：西拉俱乐部 市场的参与者与受影响的旁观者之间签订合约 The textbook gives a nice example of a contract in which a beekeeper and apple orchard manager each agree to boost production, as each producer’s activity confers an external benefit on the other. EXTERNALITIES 30

31 Private Solutions to Externalities
The Coase theorem: If private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own. 科斯定理： 如果私人各方可以无成本地就资源配置进行协商，那么，他们就可以自己解决外部性问题 EXTERNALITIES 31

32 The Coase Theorem: An Example
Dick owns a dog named Spot. Negative externality: Spot’s barking disturbs Jane, Dick’s neighbor. The socially efficient outcome maximizes Dick’s + Jane’s well-being. Dick 有一条名为Spot的狗 负外部性： Spot的狂吠干扰了Dick的邻居Jane 社会有效率的结果： 最大化Dick与Jane的福利 If Dick values having Spot more than Jane values peace & quiet, the dog should stay. 如果Dick对Spot的评价比Jane对平静 与安宁的评价要高，那Dick应该养狗 Coase theorem: The private market will reach the efficient outcome on its own…科斯定理：私人市场可以自己达到有效率的结果 See Spot bark. EXTERNALITIES 32

33 The Coase Theorem: An Example
CASE 1: Dick has the right to keep Spot. Benefit to Dick of having Spot = $500 Cost to Jane of Spot’s barking = $800 Socially efficient outcome: Spot goes bye-bye. Private outcome: Jane pays Dick $600 to get rid of Spot, both Jane and Dick are better off. Private outcome = efficient outcome. 例1： Dick有养Spot的权利 Dick养Spot的利益 = $500 Jane承受Spot狂吠的成本= $800 社会有效率的结果：Jane放弃养Spot 私人结果： Jane支付给Dick $600，让他放弃养Spot，Jane和Dick都会更好 私人结果=有效率的结果 Both Jane and Dick are better off. (What about Spot? Doesn’t anyone care about Spot???) EXTERNALITIES 33

34 The Coase Theorem: An Example
例 2: Dick 有养Spot的权利。 Dick养Spot的利益=$1000 Jane承受Spot狂吠的成本=$800 社会有效率的结果：Dick继续养Spot 私人结果： Jane不愿意支付超过 $800的价格，Dick也不愿意接受少于 $1000的价格，因此Dick继续养Spot 私人结果=有效率的结果 CASE 2: Dick has the right to keep Spot. Benefit to Dick of having Spot = $1000 Cost to Jane of Spot’s barking = $800 Socially efficient outcome: See Spot stay. Private outcome: Jane not willing to pay more than $800, Dick not willing to accept less than $1000, so Spot stays. Private outcome = efficient outcome. EXTERNALITIES 34

35 The Coase Theorem: An Example
例3： Jane拥有平静与安宁的权利 Dick养Spot的利益 = $800 Jane承受Spot狂吠的成本= $500 社会有效率的结果：Dick继续养Spot 私人结果：Dick支付给Jane $600，并继续养狗 私人结果 = 有效率的结果 CASE 3: Jane has the legal right to peace & quiet. Benefit to Dick of having Spot = $800 Cost to Jane of Spot’s barking = $500 Socially efficient outcome: Dick keeps Spot. Private outcome: Dick pays Jane $600 to put up with Spot’s barking. Private outcome = efficient outcome. The private market achieves the efficient outcome regardless of the initial distribution of rights. 无论最初的权利如何分配，私人市场最后能达到有效率的结果 EXTERNALITIES 35

36 A C T I V E L E A R N I N G 3 Applying Coase
Collectively, the 1000 residents of Green Valley value swimming in Blue Lake at $100,000. A nearby factory pollutes the lake water, and would have to pay $50,000 for non-polluting equipment. A. Describe a Coase-like private solution. B. Can you think of any reasons why this solution might not work in the real world? 总的来说，1000个绿谷的居民觉得能在蓝湖中游泳价值$100,000 一个附近的工厂污染了湖水，只愿意花$50,000购买可以无污染的设备 A. 描述科斯定理的私人解决办法 B. 你认为在现实世界中这种解决办法不起作用的原因是什么？ Have students work together – in small groups, or as a class (with you as moderator). If working in groups, allow 5 minutes, then solicit responses from the class. If you wish, insert a blank slide after this one and use it to type students’ responses as they share them. Most students should find part A very straight-forward. A good Coasian solution would be for each of the 1000 residents to chip in $75, so the town can offer $75,000 to the factory to stop polluting. The second part involves brainstorming: students try to come up with a list of reasons why it might be difficult to implement Coase-like solutions in the real world. Brainstorming engages students and is shown to increase learning outcomes and student satisfaction. And it provides a break from what otherwise would be a long stretch of lecture. I have not provided a slide with answers. Instead, the following slide lists the reasons why private solutions don’t always work, and the “notes” section (what you’re reading right now) gives some examples of each in the context of this scenario. 36

37 Why Private Solutions Do Not Always Work
1. Transaction costs: The costs parties incur in the process of agreeing to and following through on a bargain. These costs may make it impossible to reach a mutually beneficial agreement. 2. Stubbornness: Even if a beneficial agreement is possible, each party may hold out for a better deal. 3. Coordination problems: If # of parties is very large, coordinating them may be costly, difficult, or impossible. 1. 交易成本： 各方在达成协议与遵守协议过程中所发生的成本，这些成本可能最终使双方达不成对双方都有利的结果 2. 固执： 即使协议对双方都是有利的，双方也可能不会达成协议，而是等待一个对自己更好的交易 3. 协调问题： 当利益各方人数众多时，协调各方变得成本高昂，困难，甚至不可能 An example for each bullet point in the context of the brainstorming activity on the previous slide: 1. Transactions costs: Suppose lawyers charge $60,000 to represent the two parties and draw up a contract that is enforceable in a court. Then it will be impossible for both parties to come to a mutually beneficial agreement, and the factory will continue polluting the lake. 2. Stubbornness: Suppose the town offers $55,000 to the factory. The factory would be better off taking this offer than nothing at all, but the factory may counter with a $95,000 price. Both parties hold out in hopes that the other will cede, but neither does. The factory keeps polluting, and the residents of Green Valley continue to be denied the joy of swimming in the lake. 3. Coordination problems: Getting all 1000 residents to agree to a specific offer will be difficult. Moreover, each resident has an incentive to free-ride off his neighbors. EXTERNALITIES 37

38 CHAPTER SUMMARY An externality occurs when a market transaction affects a third party. If the transaction yields negative externalities (e.g., pollution), the market quantity exceeds the socially optimal quantity. If the externality is positive (e.g., technology spillovers), the market quantity falls short of the social optimum. 当市场交易影响第三方的福利时，会产生外部性。如果一项活动产生了负外部性，例如污染，市场的社会最适量将小于均衡量。如果一项活动产生了正外部性，例如技术溢出效应，社会最适量将大于均衡量 38

39 CHAPTER SUMMARY Sometimes, people can solve externalities on their own. The Coase theorem states that the private market can reach the socially optimal allocation of resources as long as people can bargain without cost. In practice, bargaining is often costly or difficult, and the Coase theorem does not apply. 有时，人们靠自己来解决外部性问题。科斯定理说，如果人们能够无成本地谈判，那么，私人市场总可以达成一个资源有效配置的协议。在实际情况中，在许多利益各方间达成协议是高成本或者困难的，科斯定理并不适用 39

40 CHAPTER SUMMARY The government can attempt to remedy the problem. It can internalize the externality using corrective taxes. It can issue permits to polluters and establish a market where permits can be traded. Such policies often protect the environment at a lower cost to society than direct regulation. 政府用各种政策来解决外部性问题。政府可以通过矫正税来使外部性内部化，也可以通过可交易的污染许可证市场。这些政策能够比直接管制更低的社会成本来保护环境 40