NS3040 Summer Quarter 2018 Examples Market Imperfections

Neutral Carbon Tax I Greg Ip, A Carbon Tax that Won’t Hurt Growth, Wall Street Journal, September 29, 2016 Obama administration has been attempting to reduce green-house gas emissions through regulation Emission targets for coal burning power plants, mandated fuel efficiency Being challenged by a number of state governors and business groups However likely that reducing emissions through regulation comes at the expense of economic growth. Or at least it is perceived to do so. Higher car prices, electricity bills, cost of replacing coal power plants

Energy Trilemma Classic energy trilemma

Neutral Carbon Tax II Washington state has an initiative that overcomes the growth/environment tradeoff Carbon tax that It is revenue neutral – Overall taxes same as before Embeds the cost of carbon emissions in price paid for energy Automatically encourages conservation Makes renewable energy more appealing without regulations and subsidies that distort investment and undercut growth Revenue is used to cut other taxes, so does not reduce incomes or undermine business competitiveness

Neutral Carbon Tax III Ironically, much of the opposition coming from environmental groups Want to use carbon taxes to Fund renewable energy and green technology Bolster incomes of workers and communities they feel are most hurt by climate change Effect is to equate climate policy with bigger government – hard to achieved broad based support

Neutral Carbon Tax IV Operation of the tax All revenue returned Impose $15 tax per ton of carbon dioxide first year, $25 in second year, thereafter 3.5% after inflation until it reaches $100 in current dollars Would add 25 cents to price of gasoline Average monthly electric bill up by $8 All revenue returned To taxpayer via one percentage point cut is state sales tax Elimination of a business tax and A tax rebate of up to $1,500 a year to 460,000 low income workers

Neutral Carbon Tax V Similar to a 2008 carbon tax in British Colombia Tax has curbed average person’s fuel consumption by 7% and increased average car’s fuel efficiency by 4% British Colombia’s growth has not declined as a result of the tax.

Neutral Carbon Tax VI

Antibiotics: Market Failure I Lawrence Fisher, Antibiotics: Poster Child for Market Failure, Milken Institute Review August 15, 2016 Problem: increase in antibiotic-resistant infectious diseases Despite the need for new medicines in the area, companies prefer to pursue R&D efforts for treating chronic diseases Reason: When treatments for infectious diseases work, work rapidly Producers must cover R&D costs over relatively few doses Public outraged at paying thousands of dollars for a few pills or injections Often infectious diseases most prevalent in populations that can least afford them.

Antibiotics: Market Failure II Result Large and growing gap between private returns to antibiotic development and value to society UK study estimates 700,000 people dying each year from infections resistant to widely available antibiotics Absent major intervention, by 2050 ten million will die each year – more than currently die from cancer Estimates by 2050 will have drained $100 trillion from the global economy or about $10,000 for every human alive today

Antibiotics: Market Failure III Somehow problem has yet to translate into decisive action Funding for antibiotic development actually declined 19% in five years ending in 2013, compared with previous five years. Problem companies and investors go where the money is – drugs for widespread chronic conditions, cancer, diabetes etc., not antibiotics “The market looks at this and says not only do I have a straightforward path to approval with oncology drugs, but I can charge whatever I want.” “People just not used to paying big dollars for antibiotics”

Antibiotics: Market Failure IV Market for pharmaceuticals rife with inefficiencies and inconsistencies Some cases promotes over-use while others choke off innovation even when societal return is high. Health care driven by uneasy mix of: Technocratic public policy Political lobbying and Private decision making Decisions often made with limited knowledge by parties who won’t suffer much if they are wrong.

Antibiotics: Market Failure V Related problem is that problem more chronic than acute. As with climate change, economic symptoms slow to manifest and There are rarely immediate consequences for countries that fail to take action