Assignment 4: Market Failures and Policy

AEB 2451 Lecturer: Misti Sharp

Assignment 4: Market Failures and Policy

Instructions: You may work in groups but you must turn in your own work! Indicate on the front page who you worked with (max 3 people). An electronic pdf must be submitted online by midnight on Friday. Show all work so that partial credit may be given. This homework is worth 15 points total.

Read the following article “Heads, You Win. Tails, You Win, Too” in The New York Times: http://www.nytimes.com/2013/01/06/business/pigovian-taxes-may-offer-economic-hope.html

1) After reading the idea behind Pigouvian taxes, why do economists and lawmakers on both sides of the aisle seem to favor Pigou taxes? (3 pts)

2) Identify each externality mentioned by the author and identify the type of externality (economy or diseconomy) it is and which side of the market it is on (production or consumption). (3 pts)

Read the following article on an Everglades reservoir project (this is also on elearning as a pdf) and respond to the following questions based on this article: https://www.naplesnews.com/story/news/local/environment/2018/01/03/florida-could-spend-1- billion-everglades-reservoir-project-but-work/997967001/

3) Based on last week’s lecture regarding the types of values for environmental resources, what kinds of values could a Floridian have for the everglades? What kind of values could a Norwegian have for the everglades? What type of good is the Florida everglades (explain fully)? (3 pts)

4) One major point of the article is that the everglades need saving. What kinds of market failures have persisted for the everglades in recent history? Because these market failures have not previously been addressed, how has the provision of the goods from the everglades been compared to an efficient outcome? (3 points)

5) What kinds of government failure seem to be present in the realization of socially optimal outcomes for the everglades? Support your analysis with statements from the article. Is there another way to achieve a socially optimal outcome for this resource (again, think about the type of good and why socially optimal outcomes do not occur)? (3 pts)