Economic Policy and Market Regulation Part 3 Dr. Stefan Kooths BiTS Berlin (winter term 2013/2014) www.kooths.de/bits-ep

Introduction and Overview Outline Introduction and Overview Market Mechanisms and Government Interventions Externalities and Public Goods Technological externalities Public goods and common resources Competition Policy and Regulation Ordoliberalism and the Social Market Economy Summary: The Key Lessons Learnt

Technological vs. pecuniary externalities

Positive externalities: Private and social utility

Negative externalities: Private and social cost

Policy instruments: Incentive-based vs. command-and-control

Criteria: Static efficiency, dynamic efficiency, and effectiveness

Moral suasion

Nationalization

Public orders

Pigou-taxes/subsidies Arthur Cecil Pigou (1877—1959)

Cap-and-trade (example: pollution permits)

Bargaining: The Coase theorem Ronald Coase (1910—2013)

Introduction and Overview Outline Introduction and Overview Market Mechanisms and Government Interventions Externalities and Public Goods Technological externalities Public goods and common resources Competition Policy and Regulation Ordoliberalism and the Social Market Economy Summary: The Key Lessons Learnt

Classification of goods: Excludability and rivalry Classification matrix Rivalry? yes no Excludability? Private good Club good Quasi-public good Public good

Private vs. collective goods: Aggregating individual demand

Non-excludability: The free-rider problem

Managing collective goods: Quantities, prices, and willingness to pay

Providing public goods: Cost-benefit analysis

The Tragedy of the Commons

Common resources and property rights