Economics in Two Lessons Chapter 16: Environmental policy

Nearly seven years after I started work, here’s the final draft chapter from my book-in-progress, Economics in Two Lessons. Thanks to everyone who commented on the first 15 chapters and encouraged me in the project as a whole.

I’ve had quite a few amusing snarks on Twitter to the effect that 16 chapters and 90 000 words is an awful lot for just two lessons.  That’s true and yet there are even more topics I wanted to cover. In particular, I wrote quite a bit on health and education but have had to omit most of it for space reasons. Still, if anyone wants to point out critical omissions, now’s the time.

Comments, criticism and praise are welcome. I’m also on the lookout for telling graphs, insightful illustrations and apt quotations.

Earlier draft chapters are available. These aren’t final versions, as I am now editing the entire manuscript, but you can read them to see where the book is coming from.

Table of Contents
Chapter 1: What is opportunity cost?
Chapter 2: Markets, opportunity cost and equilibrium
Chapter 3:Time, information and uncertainty
Chapter 4:Lesson 1: Applications.
Chapter 5: Lesson 1 and economic policy.
Chapter 6: The opportunity cost of destruction
Chapter 7: Property rights, and income distribution
Chapter 8:Unemployment
Chapter 9: Market Failure
Chapter 10: Market failure -Externalities and pollution.

Chapter 11: Market failure: Information, uncertainty and financial markets

Chapter 12 on Predistribution

Chapter 13 on Redistribution

Chapter 14: Policy for full employment

Chapter 15: Monopoly and the Mixed Economy.

Feel free to make further comments on these chapters if you wish.

I’m going to leave these draft chapters online for the moment, but my publisher has asked that they be taken down once the manuscript is approved and the book goes to press. The final version should be available in print and online form at a modest “trade” price, rather than that of an academic text.

10 thoughts on “Economics in Two Lessons Chapter 16: Environmental policy

  1. OK so far as it goes. However, “the near-destruction of Lake Baikal in Siberia” is OTT. I’ve been there. You don’t realize until you get there how enormous it is. Try superimposing it it on a map of Queensland. The couple of paper mills on the shore are a shame, because it would be pristine otherwise, but “there’s a lot of ruin” in something so huge.

    My main complaint is that pollution is not the only issue in environmental economics. I missed Raworth’s doughnut and the problem of limits. Also those of the values of beauty and diversity, where pricing approaches hardly work at all. The book is already getting rather long, so a simple statement of omissions could suffice.

    Footnotes are a matte of taste. I am something of a purist; it you can’t work the point into the text, it’s not worth it. Footnotes are for sources.

  2. As founder and president of the Society for the Abolition of Footnotes and Endnotes, (S.A.F.E.), I deplore footnotes at all. Sources are (Author, Date) in the text. Admittedly, footnotes are one order of magnitude less evil than endnotes.

  3. Even if not included in the book, I would appreciate reading the writings on health and education, even if they are in early draft

  4. Minor point: Obviously it is the activity of smoking near others and of driving while drunk which is the negative externality not the activities of smoking and drinking per se. Hence you probably want laws or fines on these activities rather than smoking/drinking per se. In the absence of information asymmetries smoking/drinking (and gambling) are “sin goods” where the state has intervened (very justifiably in my view) to deny consumer sovereignty. Libertarians call such interventions “internalities”.

    Good practical chapter. Specific. I’ll try to post this – some of my comments on other chapters got consumed by WP.

  5. Excessive drinkers and smokers inflict costs on others even if they confine all their drinking and smoking to their own lounge room and then sleep it off. Their health costs will be higher in the long run and society pays those. Their demand for alcohol and tobacco inflicts opportunity costs on the whole of society. Those medical resources could have been used to treat others and the resources the economy wasted on producing alcohol and tobacco could have been used to produce something useful and life-enhancing instead of useless and life-destroying. Also, their own productivity, amenity and sociability are lowered. So-called sin taxes and Pigovian taxes are fully justified provided they are identified and implement correctly.

    Taxes on alcohol and tobacco (both seriously deleterious substances) should be as high as possible but limited just below the point where they begin to encourage significant illegal activity in their provision. An excessively high tax will begin to function like a prohibition attempt. We know that doesn’t work and it encourages crime. Similar reasoning should be applied to some other drugs, for example marijuana, which should be legalised, pharmaceutically controlled, standardised and taxed in the same Pigovian fashion outlined above.

  6. I didn’t mention health costs in my comment but, in any event Iconoclast, your comment is misleading at least with respect to smoking. The government makes a net profit from smokers given the taxes they pay. Partly this is because smokers die younger and incur less than average end-of-life health costs.

  7. When sulphur dioxide emissions permits were introduced, many on the left were scandalised that polluters were allowed to buy their way into being allowed to pollute. Pollution is a moral wrong, it was argued, and you should not be allowed to pollute, full stop. Economists who supported trading in pollution pernits, it was further argued, were the amoral (at best) enablers of immoral (or criminal) polluters.

  8. The chapter is ‘environmental policy’, but it works with a rather narrow definition of ‘pollutants’. With the exception of radioactive wastes, these are of the kind that often are gradually reduced in concentration locally, or transformed chemically. The pollutants that multiply – introduced pests – are particularly intractable. Neither property rights nor taxes are likely to reduce the current value of the opportunity costs that a pest introduction will impose on, say, food production, effectively for ever. Introductions demonstrate inadequate risk assessment in setting ‘policy’. White spot in prawns in Moreton Bay is a good example of a bad outcome.

    Having opened up that can of biological pests – I am sympathetic to the quandary of needing 16 chapters for 2 lessons.

  9. Late to the party. As usual. Thanks for the read, I enjoyed it and some of the other, earlier chapters.

    I find myself thinking about your draft on EnvPol quite a bit. There was, somehow, something missing. But couldn’t put my finger on it straight away. But, then I was Teitenberg-ed at post-grad, which was mostly useful for gaining insights into the worldviews of some of the clever folk I occasionally had dealings with.

    What came to me, for whatever it’s worth, is this chapter could, probably, be a place where some reflection on the limits of economic and policy-responses might occur? In quite a period of time in the environmental/ecological trenches, as a lowly squaddie, Slovic/Kahnemann/Tversky/Gigerenzer and such, were more useful than Teitenberg. Skirmishes around Type I and Type II errors were more likely (re +ve or -ve “effects” of activities) than not (e.g. see Shrader-Frechette) . All of which might link back to your earlier chapters on information, uncertainty, time and the like?

    Opportunity costs of loss of natural diversity? Seems sorta important? Economics might/does have something useful and workable to say about that? Possibly?

    Baikal. My doctoral supervisor used to do regular (internationally cooperative) research on water resources there until the late 90s. In our natters, Bob (Leonard) didn’t give an impression of imminent collapse of the lake, which your comment sorta implies. But, it could have gone to s**t since then. I don’t know. I’m out to pasture now.

    Quotes. I quite like R.L Stevenson’s: ‘the complexity of that game of consequences to which we all sit down, the hanger-back not least.’ …

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