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Chapter 4
Property Rights, Externalities, and Environmental Problems
환경문제와 소유권 그리고 외부효과
2009/10/
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2. Introduction
This chapter focuses on the inefficiencies caused by the lack of well-defined property rights.
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3. Objectives Define property right.
Discuss an efficient property right structure.
Illustrate how well-defined, exchangeable property rights will lead to economic efficiency.
Review consumer surplus, producer surplus and the maximization of net benefits.
Define externality or third party effect and illustrate market failure in the presence of an externality. Use examples to illustrate both positive and negative externalities.
Define scarcity rent.
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4. Illustrate how open access regimes lead to overexploitation.
Distinguish between various property rights regimes including private property, common property resource regimes and open access resources.
Illustrate how open access regimes lead to overexploitation.
Define public goods. Define free-rider.
Illustrate other market imperfections such as the effects of monopoly power.
Discuss the effects of discount rates on allocation decisions. Examine the reasons for the divergence of social and private discount rates.
Define rent seeking and government failure.
Discuss remedies for negative externalities.
Define the Coase Theorem.
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5. Property Rights and Efficient Market Allocations
Efficient Property Right Structures
Exclusivity—All the benefits and costs should only accrue to the owner.
Transferability—Property rights should be transferred to others.
Enforceability—Property rights should be secure from seizure or encroachment.
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6. FIGURE 4.1 The Consumer’s Choice
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7. FIGURE 4.2 The Producer’s Choice
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8. FIGURE 4.3 Market Equilibrium
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9. Consumer surplus is willingness to pay minus the actual payment or the area under the demand curve and above the price line. Consumers will decide how much to purchase by maximizing his or her own individual benefit.
Producer surplus is the area above the marginal cost (supply) curve and below the price line. This is the net benefit received by the seller.
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10. Producer Surplus, Scarcity Rent, and Long-Run Competitive
Equilibrium
In the short run, producer surplus = profits + fixed cost.
In the long run, producer surplus = profits + rent.
Under perfect competitions, long-run profits equal zero and producer surplus equals rent.
Scarcity Rent
Scarcity rent is the producer surplus persists in the long-run competitive equilibrium.
 Article, “Scarcity Rents and Rent Seeking”
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11. Externalities as a Source of Market Failure
The Concept Introduced
Externalities exist whenever the welfare of some agent depends not only on his or her activities, but also on activities under the control of some other agent.
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12. FIGURE 4.4 The Market for Steel
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13. Types of Externalities
External diseconomy or negative externality
It imposes costs on a third party.
External economy or positive externality
It occurs whenever an activity imposes benefits on a third party.
Pecuniary externalities
It exists when the external effect comes from altered prices.
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14. Improperly Designed Property Rights Systems
Other Property Rights regimes
Private property regimes
Individuals hold entitlements.
State-property regimes
Governments own and control property.
Common-property regimes
Property is jointly owned and managed by a specific group.
Res nullius or open access regimes
No one owns or exercises control over the resources.
Common pool resources— characterized by non-exclusivity and divisibility.
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15. FIGURE 4.5 Bison Harvesting
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16. Public Goods Public goods Biological diversity
They are both indivisible and nonexcludable.
자원 별 소유레짐 비교
Biological diversity
It includes the amount of genetic variation among individuals within in a single species and the number of species in a community.
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17. FIGURE 4.6 Efficient Provision of Public Goods (1 of 3)
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18. FIGURE 4.6 Efficient Provision of Public Goods (2 of 3)
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19. FIGURE 4.6 Efficient Provision of Public Goods (3 of 3)
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20. FIGURE 4.6 Efficient Provision of Public Goods?
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21. A free rider is someone who derives benefits from a commodity without contributing to its supply.
An efficient allocation is determined by the intersection of the demand curve and the marginal cost curve.
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22. Example 4.3
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23. Example 4.3 (continued)
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24. Imperfect market Structures
Monopoly: when product is sold by a single seller
Monopolies will supply too little of a good at too high a price.
At the monopoly output, marginal benefits are greater than marginal costs. Net benefits are not maximized and there is a deadweight loss.
A cartel is a group of producers who form a collusive agreement to gain monopoly power.
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25. FIGURE 4.7 Monopoly and Inefficiency
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26. Debate 4.1
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27. Debate 4.1
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28. Divergence of Social and Private Discount Rates
Risk-free cost of capital
The rate of return is earned when there is absolutely no risk of earning more or less than the expected return.
Risk premium
It is the amount required to compensate capital owners for potential differences between expected and actual returns.
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29. Government Failure Rent seeking
Rent seeking behavior may persuade government officials to pursue options that are beneficial to a specific interest group and would not maximize social net benefits.
Examples include agricultural producers seeking price supports and consumer groups seeking subsidies.
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30. FIGURE 4.8 Efficient Output with Pollution Damage
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31. The Pursuit of Efficiency
Private Resolution Through Negotiation
The simplest means of restoring efficiency
The Courts: Property Rules and Liability Rules
Not well-defined property rights corrected by courts
Legislative and Executive Regulation
Several forms taken including taxes and regulatory laws
An Efficient Role for Government
Considering the role of the government in restoring efficiency
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32. Coase Theorem
When negotiation costs are negligible and affected parties can freely negotiate, the entitlement can be allocated by the courts to either party and an efficient allocation will result. Only the distribution of costs and benefits among the effective parties is changed.
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33. Figure 4.9
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34. Summary Property rights Externalities
Improperly defined property rights system
Imperfect markets
Divergence of social and private discount rate
Rent seeking
Next class = Ch. 6 인구문제
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