1. NS3040 Summer Quarter 2018 Examples Market Imperfections

2. 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

3. Energy Trilemma
Classic energy trilemma

4. 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

5. 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

6. 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

7. 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.

8. Neutral Carbon Tax VI

9. 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.

10. 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

11. 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”

12. 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.

13. 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