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    Unsolicited Life Lesson: 1. Get Organized!

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    Trần Hồng Nhung
    1. Unsolicited life lessons often advise getting organized and developing the ability to concentrate. 2. Economic goods can be classified based on whether they are rival or nonrival in consumption and whether people can be excluded from consuming them. Public goods are nonrival and nonexcludable. 3. Elinor Ostrom identified design principles for managing common pool resources locally, such as clearly defined boundaries and rules adapted to local conditions.

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    Unsolicited Life Lesson: 1. Get Organized!

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    Trần Hồng Nhung
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    1. Unsolicited life lessons often advise getting organized and developing the ability to concentrate. 2. Economic goods can be classified based on whether they are rival or nonrival in consumption and whether people can be excluded from consuming them. Public goods are nonrival and nonexcludable. 3. Elinor Ostrom identified design principles for managing common pool resources locally, such as clearly defined boundaries and rules adapted to local conditions.

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    1. Unsolicited life lessons often advise getting organized and developing the ability to concentrate. 2. Economic goods can be classified based on whether they are rival or nonrival in consumption and whether people can be excluded from consuming them. Public goods are nonrival and nonexcludable. 3. Elinor Ostrom identified design principles for managing common pool resources locally, such as clearly defined boundaries and rules adapted to local conditions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    12 views29 pages

    Unsolicited Life Lesson: 1. Get Organized!

    Uploaded by

    Trần Hồng Nhung
    1. Unsolicited life lessons often advise getting organized and developing the ability to concentrate. 2. Economic goods can be classified based on whether they are rival or nonrival in consumption and whether people can be excluded from consuming them. Public goods are nonrival and nonexcludable. 3. Elinor Ostrom identified design principles for managing common pool resources locally, such as clearly defined boundaries and rules adapted to local conditions.

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    of 29

    Unsolicited Life Lesson

    1. Get organized!
    Unsolicited Life Lesson
    2. Develop capacity to concentrate
    Excludability
    • Excludable: a good for which it is possible to
    exclude people who have not paid for it
    • Non-excludable: a good for which it is not
    possible to exclude people who have not paid
    Rivalry
    • Rival: consumption by one consumer prevents
    simultaneous consumption by another
    • Nonrival: consumption by one person does not
    diminish what is left for others to consume
    Characteristics of economic goods

    Nonrival Public good


    (Vaccinations)

    Private good Open access resource


    (Slice of pizza) (Ocean fishery)
    Rival

    Excludable Nonexcludable
    Video
    Elinor Ostrom
    • Won the Nobel Prize in
    Economics in 2010 for work
    on managing open access
    resources
    – First woman to win the prize
    – First non-economist to win it
    • She flipped Hardin’s question
    over
    • Identified eight “design
    principles” of stable, local,
    common pool resource
    management
    Ostrom’s design principles
    1. Clearly defined boundaries
    2. Rules regarding appropriation and provision adapted to local
    conditions
    3. Collective-choice arrangements that allow most resource
    appropriators to participate in the decision-making process
    4. Effective monitoring by monitors or accountable to the
    appropriators
    5. A scale of graduated sanctions for violators of community rules;
    6. Mechanisms of conflict resolution that are cheap and of easy
    access
    7. Self-determination of the community recognized by higher-level
    authorities
    8. In the case of larger common-pool resources, organization in the
    form of multiple layers of nested enterprises
    Questions
    • Beyond understanding the source of pollution
    problems (market failure), we have two other
    big questions
    – How much should we pollute?
    – How should we implement a specific target?
    • To think about these analytically, we need a
    model
    A model of pollution control

    • Basic trade-offs:
    – Benefits: reduce damages from
    environmental degradation
    – Cost: commit resources with
    opportunity cost for society
    Damages

    All the negative impacts that


    users of the environment
    experience as a result of the
    environmental degradation
    Example
    Other effects
    • Value of lost ecosystem services
    – For example, mangroves shelter coastlines from
    erosion and storm damage
    • Value of lost biodiversity

    We will discuss
    valuation more in a
    couple days
    Damage functions

    • Two types:
    – emission damage functions
    – ambient damage functions
    • Why might we need both?
    Damage functions
    • Interpret the following examples:

    • How to measure total damages?


    Why might one damage function be
    higher than another?

    • # of people affected; e.g., urban


    versus rural
    • Time and circumstance: e.g., heat
    inversion effect may depend on
    seasonal weather patterns

    • Other important considerations:


    – Uncertainty: are damages typically
    “known”
    – Time
    Incorporating abatement costs into
    general model of pollution abatement
    • Starting with an emission damage function
    graph, how can we include abatement costs
    on the same graph?
    • Why downward sloping?
    • What is the meaning of the uncontrolled
    emissions?
    Abatement cost functions

    1. MAC’s increase slowly at first


    2. MAC’s increase rapidly from the start
    3. Scale effect
    What emission level of emissions is most
    efficient in the pollution control model?

    Why?
    What happens to the efficient level when:

    • Marginal damages increase?


    • Abatement costs decrease
    (perhaps because technological changes)
    Cost benefit analysis

    • Public sector version of a profit and loss


    statement—logic of maximizing net
    payoffs applied to public sector projects
    Video: Cost benefit analysis
    Basic idea
    • Put everything into a common unit of account
    (usually dollars since this reflects generalized
    purchasing power)
    • Then add together to get a simple number
    reflecting the extent to which benefits outweigh
    costs (or the extent to which they do not)

    This does not mean that everyone is


    better off, just that in aggregate
    benefits outweigh costs
    Three obstacles to adding up

    1. How to compare monetary expenditures on


    policy with non-monetized damages to
    human health and the environment?
    (valuation)
    2. How to compare net benefits this year with
    net benefits 10 years from now? (time)
    3. What to incorporate uncertainty?
    2. Time in cost benefit analysis

    • How should we “add up” costs and benefits


    that occur at different points in time?
    – For example, how to compare policy costs
    incurred today with environmental benefits that
    occur ten years from now? 100 years from now?
    Time value of money
    • What is worth more: $100 today or $100
    received a year from now?
    • Suppose the interest rate is 5% and you
    put $100 in the bank today, how much will
    you have in a year? Two years?
    Present value
    • Suppose you put $613.90 in the bank
    today and the interest rate is 5%. How
    much will be in the account in 10 years?
    • The present value is the value today of
    money received in the future. What is the
    present value of $1000 received in 10
    years if the interest rate is 5%?
    • What is the formula for the present
    value?
    Opportunity cost

    • What discount rate?


    – Return on next best
    investment opportunity
    • For example, real return on
    capital (4% plausible) or
    return on investment in
    education/public health/etc.
    Example
    • Suppose policy makers are choosing
    between an investment in education that
    has a rate of return of 5% and an
    environmental policy that would reduce
    environmental damages by $1000 in ten
    years. Suppose the environmental policy
    cost $800 today. Should we do it? Why?
    • By this logic, the discount rate for public
    policies should reflect the rate of return on
    the next best investment—it could entail
    education, national defense, or something
    else

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