Government and the Market Government and the Market

Environmental Policy The environment and production –environmental failures of the market –nature of an environmental policy Problems with policy intervention –valuing the environment financial costs to other users revealed preference contingency valuation –other problems spatial issues temporal issues irreversibility issues The environment and production –environmental failures of the market –nature of an environmental policy Problems with policy intervention –valuing the environment financial costs to other users revealed preference contingency valuation –other problems spatial issues temporal issues irreversibility issues

Environmental Policy Environmental policy options –market-based policy: taxation and subsidies conflicts with revenue objectives redistributive effects problems with international trade effects on employment uses of green taxes in various countries Environmental policy options –market-based policy: taxation and subsidies conflicts with revenue objectives redistributive effects problems with international trade effects on employment uses of green taxes in various countries

Types of environmental taxes and charges

Green tax revenues as a % of GDP

Environmental Policy Environmental policy options (cont.) –non-market-based policy: command-and- control systems approaches to devising CAC systems –technology-based standards –ambient-based standards –social-impact standards assessing CAC systems Environmental policy options (cont.) –non-market-based policy: command-and- control systems approaches to devising CAC systems –technology-based standards –ambient-based standards –social-impact standards assessing CAC systems

Environmental Policy Environmental policy options (cont.) –tradable permits how tradable permits work –deciding on permitted levels of pollution –'grandfathering' their possible use internationally advantages problems Environmental policy in the UK and EU Environmental policy options (cont.) –tradable permits how tradable permits work –deciding on permitted levels of pollution –'grandfathering' their possible use internationally advantages problems Environmental policy in the UK and EU

Transport Policy Congestion problems and the impact on society and business

Passenger transport in Great Britain (percentage of passenger kilometres by road) Passenger transport in Great Britain (percentage of passenger kilometres by road)

Passenger transport in Great Britain (percentage of passenger kilometres by road) Passenger transport in Great Britain (percentage of passenger kilometres by road)

Passenger transport in Great Britain (percentage of passenger kilometres by road) Passenger transport in Great Britain (percentage of passenger kilometres by road)

Passenger transport in Great Britain (percentage of passenger kilometres by road) Passenger transport in Great Britain (percentage of passenger kilometres by road)

Passenger transport in Great Britain (percentage of passenger kilometres by road) Passenger transport in Great Britain (percentage of passenger kilometres by road)

Cars per thousand population Energy and Transport in Figures (EC, 2003); Federal Highway Administration: Increase in car ownership

UK Cars per thousand population Energy and Transport in Figures (EC, 2003); Federal Highway Administration: Increase in car ownership

USA UK Cars per thousand population Energy and Transport in Figures (EC, 2003); Federal Highway Administration: Increase in car ownership

USA Germany UK Cars per thousand population W Germany Energy and Transport in Figures (EC, 2003); Federal Highway Administration: Increase in car ownership

USA Germany Belgium Sweden UK Cars per thousand population W Germany Energy and Transport in Figures (EC, 2003); Federal Highway Administration: Increase in car ownership

USA Germany Belgium Sweden UK Spain Cars per thousand population W Germany Energy and Transport in Figures (EC, 2003); Federal Highway Administration: Increase in car ownership

Transport Policy The allocation of road space –demand for road space a derived demand determinants of demand the price and income elasticities of demand –supply of road space short run long run The allocation of road space –demand for road space a derived demand determinants of demand the price and income elasticities of demand –supply of road space short run long run

Transport Policy Social optimum level of road usage –marginal social benefit –marginal social cost congestion costs: time congestion costs: monetary environmental costs –socially efficient level of road usage Social optimum level of road usage –marginal social benefit –marginal social cost congestion costs: time congestion costs: monetary environmental costs –socially efficient level of road usage

Actual and optimum road usage O Costs and benefits (£) MSB Cars per minute

O Costs and benefits (£) MSB Cars per minute MC (private) Actual and optimum road usage a

O Costs and benefits (£) MSB Cars per minute Q1Q1 e Actual and optimum road usage MC (private) a

b O Costs and benefits (£) MSB Cars per minute Q1Q1 e MSC Actual and optimum road usage MC (private) a

a b d O Costs and benefits (£) MSB Cars per minute Q1Q1 e Q2Q2 c Optimum charge MSC Actual and optimum road usage MC (private)

Transport Policy Social optimum level of road usage –marginal social benefit –marginal social cost congestion costs: time congestion costs: monetary environmental costs –socially efficient level of road usage Identifying a socially optimum level of road building Social optimum level of road usage –marginal social benefit –marginal social cost congestion costs: time congestion costs: monetary environmental costs –socially efficient level of road usage Identifying a socially optimum level of road building

Transport Policy Social optimum level of road usage –marginal social benefit –marginal social cost congestion costs: time congestion costs: monetary environmental costs –socially efficient level of road usage Identifying a socially optimum level of road building –use of cost–benefit analysis Social optimum level of road usage –marginal social benefit –marginal social cost congestion costs: time congestion costs: monetary environmental costs –socially efficient level of road usage Identifying a socially optimum level of road building –use of cost–benefit analysis

Transport Policy Policy 1: direct provision –the road solution –public transport Policy 2: regulation and legislation –restricting car access bus and cycle lanes no entry to side streets pedestrian-only areas –parking restrictions Policy 1: direct provision –the road solution –public transport Policy 2: regulation and legislation –restricting car access bus and cycle lanes no entry to side streets pedestrian-only areas –parking restrictions

Transport Policy Policy 3: changing market signals –extending existing taxes –road pricing variable tolls supplementary licences electronic road pricing –subsidising alternative means of transport Policy 3: changing market signals –extending existing taxes –road pricing variable tolls supplementary licences electronic road pricing –subsidising alternative means of transport

Privatisation History of privatisation

Nationalisation and privatisation in the UK

Privatisation History of privatisation (cont.) –forms of privatisation Arguments for privatisation –market forces greater competition in the goods market greater competition for finance accountability to shareholders –reduced government interference –reducing the PSNCR –increased share ownership History of privatisation (cont.) –forms of privatisation Arguments for privatisation –market forces greater competition in the goods market greater competition for finance accountability to shareholders –reduced government interference –reducing the PSNCR –increased share ownership

Privatisation Arguments against privatisation –natural monopolies –the public interest externalities fairness and social justice –problems with the PSNCR –problems in the valuation of shares Arguments against privatisation –natural monopolies –the public interest externalities fairness and social justice –problems with the PSNCR –problems in the valuation of shares

Regulating the Privatised Industries Identifying optimum price and output Regulation in practice: –the RPI–X formula Advantages of UK regulation –discretionary –flexible –incentives Disadvantages of UK regulation –disincentives of changes to X –excessive power of regulator? –alternatively, regulatory capture –complexity of regulation Identifying optimum price and output Regulation in practice: –the RPI–X formula Advantages of UK regulation –discretionary –flexible –incentives Disadvantages of UK regulation –disincentives of changes to X –excessive power of regulator? –alternatively, regulatory capture –complexity of regulation

Making Privatised Industries more Competitive Increasing competition in the privatised industries –allowing competition where there is no natural monopoly limited extent of true natural monopoly –allowing access to grids by competitors –forbidding suppliers from being grid owners –capping market share of established firms –competitive franchising to make monopolies contestable Increasing competition in the privatised industries –allowing competition where there is no natural monopoly limited extent of true natural monopoly –allowing access to grids by competitors –forbidding suppliers from being grid owners –capping market share of established firms –competitive franchising to make monopolies contestable