4 THE OPTIMAL LEVEL OF POLLUTION AL POLLUTION AS EXTERNALITY ‘The economic definition ofpolltion is dependent upon doh some ‘peal let of waste on he environment ands hotan reaction 12 ‘har psa eet: The pysealefic can be oli (pei change, ical), ebemial eg the eet of vn on ing Surfaces) oF adtoy (ais) Tae human reaction show up aa ‘expression of iat, unpleiasines drm concer, aie. We fummave the han reactions ou of elie. As Chaper 2 indeted, ems sch 5" of satisfaction’ are for our ryan, Sonos bath ela ‘We now need to dating evo posites for the sonomic rmeming of polition, Consids an upteam indus, which ‘Treargs wae ore, earn some oof iledwaygen in ‘he water. Inurn, suppose the oxygen eduction exuses ssf fh ‘ook in he ter, ieueing nao sao erating anes 10 ‘nglers ownstrenn. th anges re ol compenete or te se ‘twelfth upstream indus wl cotiaue sates a ifthe damage dine down ws ceva to them, They ate a 0 {rete a termes. AW extra coal Known at nega {xiematy, and a eierna dneconomy. I we were consieing& union where one gent generar apse vel af eles fr ‘hid par, we would have an latece ofan extrnal Benefit (Gasite exer eternal economy) “An eteroal cost exsts when the felowing Pwo condos prev 1. Amaetvityby one went case lt of welare wo snotber ae 2 Theos of wears urcompenated.2 scores ore. "Note that Boh conan ar extemal fran external ot to ext Foresample, the on of were accomptaied by compensation ty the eae cooing the externlny, the flee ts said to be ‘erated Ths dition wile made eae shorty. 42. OPTIMAL EXTERNALITY The font fundamental feature of he diferent defiions of xenay healed been nates: the pysealprocnerof poltion oer net men hat economic’ poison exis The next abreretion ‘egal important, bu nh lest esty to undertaod ~ even “econo polaion ess unlikely 0 be she cse that sould Se tliminated. Ths propesition ean be demonsrated Using Figure Tn Fig thee othe polter activity, shown on he boron ani Coxe an benefits money trae shown on the Vera! axs. MNPR is magia net private bene is. A Tora evra of MNP, in the coptext whe the poltr ia Gem i. Bvenia Appendic 4, Baan intukive explanation iste pone ‘The pobterwilinut sons in undertaking the acti that happens to ge Hac tote plo, and il tect Dene athe frm of evens. Toe dferece betweetreienie and soils privae et Dene MND is then the marginal version of th et Denali, Iheexta et bee rom changing the evel of sett by on eit (ME te the ‘ari! external cov ie the value of the extra Alamage doe by polation sraing Vom the activity messed by Q Iisshowe bere sng with outpr Q. We consider eter posible shape or MEC in Appendix $2. "We are now ios ponlon to Hently the optimal ket of eternity I where the wo carve inte, where MNP -MEC. Wi hit We rs ofr an ntti explanation. Since he po eaves are marginal curves, the areas under them areola ‘mapitde Te aca ner MND ithe potter total ct private Tenet ad the ren under MEC i tal extertal con On the ‘umn tal the paler and slr ae equally dering ~ 16 ‘we do nt with to weit he iso loses a oe party mor shar [hother ste al of toc) could be ted a oe of maxon 1h sum of Denes minus he su of cost so, can se hat trong OXY segs aren of et Benet obtainable Hee, Q* ormuaL ie oF LLETION 6 e e or Lal ecnoicaiver 0 Fk 41 reno dntion of optimal plitin. is the optimal level of tiv, follows tat the level of ph polltonconerponding the lee of ct the optimal eve of Polition. Final, the optimal smoumt of economsedamase Eoresponding tote optimal level of polation Qi wre OO" ‘en Bn Figure 4. Ares OYQ" thrown a he opinal evel of catealy "Ti eat ca ab he derived formally. At MNPB = MEC a ‘bu (iom Appendix 4.1) MNPB=P- MC an ee MC is he marginal ast of producing the polling product Hee P-Mc= ME “ Pewee MEC “ Now, MC MEC isthe sum ofthe marginal cuts of the atv netting te extra. is arg soc oat (MSC). Hens,(6 Economix or oun MNPR= MEC, P= MSC 45 ‘Price equals marginal social cont isthe condition for Parco apiaty We do not demonstrate ths here = ay undergraduate ‘crosronomis or welre economics ext should contain a prot 43. ALTERNATIVE DEFINITIONS OF POLLUTION Popular liertwe om pollution, and sometines the scene literature too, speaks of hminating pli, Tae above iesion ‘xplaine why the piel conomie preston does ot xbrace tha idea. In Figure 4! the ehminaion of polation can oly be achieved by not producing the polluting goed at all. But, the laws of ‘ermodymamies imply that tee eam be no auch hing a 9 no pollatng product Hence ahieve zr pluton we wold har fo fave zero economic stiviy. Calls fr‘ potion thus appeat ogc “The station snot gute ar eteme as this however We need 0 moify Figure 4.1 a snprtan rape we are to ry to mae ‘Compatible the economia and the tents prsipons about esrb level of potion. In Chapter 2 wes tht the nates hwronments whish eave wae produce cn be character having certain ‘essmiative capacity’ ~ they can rcv aera level of wate degrade and conver ita harmless of ev Denetiia products Ifthe level sf waste, W, ir Ter than tht "Srna capacity, 4, then some exter will ecu a the ‘oss of degraétion nd conversion aks place. But il W exceeds 1 urter process of égraation wil ao otcur for el wl be “mpaiced, Disposing of waste to eavzenments that canna angle i simply seduces the capacity of hat enaronmeat to deal wih more To some extent we can capurethisien of asia capac by observing thal the MEC core in Figure 4.1 should realy have fuga at some postive lee! of economic atity Qa. Below he ‘ewe the only Kind of externality wil fe Yemporay the fnviconment wil eventual ren to normal once the wate Srgadstion proces has taken pice On the assumption tht we ean Ignore this temporary extemal Tor he moment, the MEC eave appears asin Tigre 42 (Note that MEC begis at Qx ony prope cormncievetorrousiion 65 7 1 et tecnica @ Figwe 42 Optna potion le wit pe site cpa, soft ply ale hn Ot isa bog se a ‘Sesh done rtona Tbe enteme ope do mat ‘SSe'Bow te pyc etic foe wae Noe tere no MEE Shea Tigre 42 does ot ler sy of he aye sive se emmy cpa al of xray The fading a he Preview mtn and Bt we cn ow Gof Foleo’, afer aly qe ly si fi appene. 20 Pols rl oonpina sx Feat 2 ho, ot {urea scone nists wr th irene batsn ‘imo opin dt set prspion fo Be Sgt Al we she ern fat once dna ‘condense indeed ire nt we std ad way ren ah Figure 42 ako show how hel of oni cv eso ‘het of wane omitd ening woe cy properon to thle ay we cn singly ray ants im Se ponding lo Fast opin oe of ‘ooo ay Wi the pina oe of wasn olan ines hve can io mal poere oe66 seonowes orrouson politer adopt pllston abatement equipment, Q can increase Cihoot the conesponding Weal that the Fir Law of ‘Terman tl dita that Wat be proportional to Q ~ Mfcting the eaironment Baal some of the Wi redirested 80 nit doe oo let the enirement. One again, we ste thatthe "rer pollaion’pesciton has some foundation. Zero wast ian irony. but ero quanes of wast acting the environment ees fon inl, Figures 4. nd 42 basi mos ofthe analyses inthe hapa tht flo, It wil therefore pay the reader o sty them ‘arly, Rca the bneqort aa several nol by {he stating point ofthe, MEC cure oe wor notational Convene fen to ete MEC curve shown ia Figure 1. When its peesary 10 ntodce the ects of peive assole apeciy, we wil adopt Fur 42 44. TYPES OF FXTERNALITY ‘We ae now in «potion to define some further terms tn trms of Figure. ‘Acca 8 =the optimal ee of extent ‘en A+R = the optinal level sf et private Beets forthe pole ‘rn A =the oma level f et soll benefits ‘Arn C+D =the level of non-optima externality which reds to te vemoned by repulsion f some set ‘arn =e lee of met private ene that are socily ivarented e he opti evel of economic activity oe he level of economi etiviy that feneats max sum priate Denes Figure 41 this demonsates «very important proposition: inthe presence of extemal there ew aoerpence Between priate and rata cout tat divergence & ot corrected the pot will ‘omine o operat at point ike Qx ia Figure 41. At Or, priate Senfis marinige at» BG, bat external cone B “CD So, revs bere Av Bs C-H-C-D- AD, which it lary Ss han Ac the net social Benefis when the poe actviy replated tO Cormac iee.ormuuneN 67 External level € + D tsi 0 be Pareto eleva because its semoval ends to "Pareto improvement, e220 gain i soca ‘eof. Exerelty level B Peco televanr bee hee 90 ee to mmove 45 WHO ARE THE POLLUTERS? Web deer rained from clang polluters. The pea “ing that otters ace fre, Bot it the eae at tneindiidal people car vers reste ale and cause aces, opie who play radios in and ot of ors ene nose use and nec, the general combinations ste as iow Fim Fem Indios Indivigeas Bien Inevideae Talis Govemmest Fen Government Individuals The indsion of government asa creator of externality acknow- legs hat goveramens ten generate exeral eft hou 46 CONCLUSIONS 1, Scents tend to defn polation fret 0 economists 2. Fer he economist, polution san exzernl crt ad occurs eal when One or more individual ler four of ere 4. Ben tea, economists de ot typeally recommend the ‘lninarion of externaty Denar tey argue tal the opt extemal ota 4 Theldes of 210 polation isnt however, absurd. A east 180 ‘omiderstins make it more rexonable tan appears fs Ss These ar (the fc tht the envionment esto have 3 tv asim eapaty, pdb) the et tat i os > fame extent to divoree esonomie activity Grom waste fom68 econo oF rosTON Affecting the envionment by introducing polation abatement, 5. eis wrong to hink of pole only afi: invidal polite Sod government ‘Caveat the analysis in this chapter has assumed perfect competion As we shale, sone of the conclsions Jane old (then we ran the seem i | i | Fee AAI Devng be MNPS cane CormmaLteveLornousumon 69 [APPENDIX 4: DERIVING A MARGINAL NET PRIVATE BENEFIT CURVE Chaper 4 ituodvced MNP in a general way. To give more ‘orm meaning weeaa oak at haw is eres inthe content othe theory o he im. Figure AC shows s demand ard marginal eet curve for x peel comprive frm. (The ype af competion it Inportant ne shale erin ne tent hat he etaton ef MNP ‘ve hee dors mot hl fr ingerfety compete conditions) By ‘tracing marginal est (MC) ftom pie (P) re ceive = marginal profit carve (Mn), Me thows the extra profit made by expanding ‘utp by ove unit. Cay, toa praia the aren under Mae ‘masimied when Ate = 0. Prot i eglalent tothe net benefit ‘ined by te frm Hence, margaal prot &foriyequvalent ‘o marginal nt priate benef,