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Lecture Notes: Nov. 13 |
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Econ. 103, Fall 2002, Prof. Nancy Folbre |
Today I want to give you a heads-up about pre-registration and about our final exam. I'll review some of the material in Chapter 11 and also briefly go over some of the homework problems due this week. First, a brief comment on the McLibel video. In that case, what were the negative externalities the leafletters were complaining about? Among other things, they claimed that McDonalds was promoting poor nutrition, destruction of rain forest habitat, and child labor. What were the negative externalities that McDonald was complaining about? Libel, or unfair attack on the reputation of the company. Who won the lawsuit? I went to check out the website www.mcspotlight.org which offers more info about the McDonald's libel case. I accidentally typed mcspotlight. com, which is a porn site. This, to me, is an example of a negative externality. Registration. Brace yourselves for possible problems with SPIRE, the University's student information system. Verify that your IDs and passwords work. Make sure you know your "enrollment appointment" and try to register as soon as possible within your window of opportunity. I have a list of economics academic advisors and their hours if you need help with figuring out what courses you need for a major, etc. Our final exam is scheduled for Monday December 16 at 8 AM at Totman Gym. Bring your basketball. Do not wear a swimsuit. Homework # 6, due this week. Pick an externality and write about it. From Chapter 10, numbers 2 and 3; from Ch. 11, no. 10. Number 2 is a "dating game," sometimes described as a "battle of the sexes." It reminds me of a short story by O. Henry, "Gift of the Magi." A husband and wife are very poor, but love each other very much. His prized possession is a pocket watch he inherited from his father. Her prized possession is her beautiful long auburn hair that has never been cut. They each want to give each other something very special for Christmas and go out on their own on Christmas Eve to shop. He sells his watch to buy some beautiful tortoiseshell combs for her hair. She cuts her hair and sells it to a wigmaker in order to buy a platinum chain and fob for his watch. This is a memorable example of a coordination failure. In the first homework problem, the situation is that you and your sweetie agreed to get together but didn't agree on what you would do. Now, each of you is in a situation in which you could buy tickets to one of two events–imagine it's a really good opportunity and you don't want to pass it up, even though you know it's possible that your sweetie is buying tickets for something else. You have slightly different preferences–one of you would prefer the baseball game, the other a movie. But you would prefer to go to either of these events with your sweetie than to end up going by yourself to one of them. This is what will happen if your sweetie buys tickets to a different event than you do.... Work it out. Here again, the lesson is that it's best to coordinate in advance. The second homework problem from Chapter 10 is a variation of the Prisoner's Dilemma. Today I'd like to finish up Chapter 11. First let's review some of the concepts we went over in class a week ago:
Take another look at Figure 11.1. Re the Coase theorem, think Erin Brockovich–the California families who sued Pacific Gas and Electric about the effects of chemicals discharged into the local water table on their children. Now consider the following multiple choice questions: If an unregulated activity produces a negative externality, one can infer that
All but one of the following factors would lessen the ability of the Coase theorem to solve an externality. Which one?
Today, we'll cover two additional topics from Chapter 11: the optimal amount of pollution, and unpriced resources/tragedy of the commons You might assume that the optimal amount of pollution is zero. Not so. A little bit of pollution may be better than the next best alternative. What if you depend on the local polluting factory for your job? Or what if a little bit of pollution only makes you cough once a week, but doubles your income? The concepts we've developed earlier in the course come into play–opportunity cost, reservation price.... Social efficiency is achieved when pollution abatement reaches the point were the marginal cost of further abatement equals the marginal benefit. Of course, when you're looking a social efficiency, much depends on how you weigh the costs imposed on some people with the benefits delivered to others. The "weights" placed on the welfare of different people depend to a very large extent on their political power and their ability to stick up for themselves in other ways. Poor people tend to suffer more from pollution than rich people do. They are more likely to live in neighborhoods with hazardous waste, poor air quality, and also with forms of social pollution such as crime. Poor people go to public beaches. Rich people fly to Bermuda or St. John's. How do you measure the marginal benefit of health to people? Economists use two kinds of measures; the amount of money someone could earn if they were healthy (the earnings losses incurred as a result of the disease) or how much an individual would be willing to pay in order to avoid the health problem (also known as a "willingness to pay" principle). Both measures of marginal benefit tend to value the health and well-being of well-educated and affluent individuals more than than of poorly educated, and non-affluent individuals. Tragedy of the Commons: Term comes from criticisms of common grazing rights–which can lead to over-grazing. Because each individual who has access to the commons gets a benefit from it, but doesn't pay the cost. This is especially true if access to the commons is not regulated by any kind of rules, or collective governance, and if people lack information about the effects of their actions on others. The example from your homework concerns llamas. The way it's set up is rather confusing, because if people have the information that is provided in the problem, overgrazing would probably NOT take place. But take a look at it and see what you think. A better example of the Tragedy of the Commons, in my opinion, is overfishing. Countries can solve this problem by regulating fishing in their coastal waters (e.g. successful regulation of swordfishing in coastal waters of New England, note link to A Perfect Storm). But outside coastal waters no county has the right to regulate. For instance, no international regulation of whaling. Endangered species such as leatherback turtles are affected. There's further discussion of these issues in The Invisible Heart. I can tell you a story about my own experiences with efforts to save leatherback turtles. |