Marginal Private Cost Research Articles

THE PREFERRED EXTERNALITIES-CORRECTING SYSTEM FOR PRACTICAL APPLICATION

This study sets two goals which are represented by the answers to the following two basic questions. What are the possibilities of national policy-makers in terms of the efficient correction of negative externalities? Since available externality correction systems give suboptimal ex post results, which system is preferable, and under what conditions? The possibilities of the policy-maker to ensure the social optimum are determined by ‘enlightenment’ (‘knowledge’) and ‘commitment’ to social goals. When the actual (ex post) marginal private costs for emission reduction are higher than the planned (ex ante) marginal private costs for emission reduction, and when the marginal social benefit is elastic, the Cap-and-Trade system is more undesirable than the price system. When the actual (ex post) marginal private costs for emission reduction are greater than the planned (ex ante) marginal private costs for emission reduction, and when the marginal social benefit is inelastic, the price system is more undesirable than Cap-and-Trade system.

Internalization of External Cost in the Thermal Power Generation on Social Welfare Maximization

For decades, Kenya has incorporated thermal power technology into its grid to generate electrical energy using fossil fuels such as petroleum, natural gas, and coal. The burning of fossil fuels has become a major source of air pollutants and is associated with several undesirable side effects on the environment and human health. However, the impact of pollutants on environmental sustainability and public welfare has yet to be evaluated. Therefore, the purpose of this study is to evaluate the external cost of electricity generated by thermal power plants in Kenya. Both survey data and secondary data were used. The analysis was conducted using externality valuation and welfare maximization approaches, and the research hypotheses were tested using a negative binomial regression model. The annual external cost ($/2022) was determined to be $ 1,333,904,970.76, with the following distribution: environmental at $ 993,488,336.26, Public health at $ 86,760,038.01, and socio-economic at $ 253,656,596.49. Equally, the thermal power generation marginal social cost ($/2022) was determined to be 1.22 $cents/kWh with the following distribution: Marginal Private Cost (MPC) at 0.01 $cents/kWh and Marginal External Cost (MEC) at 1.21 $cents/kWh. The established marginal social cost (MSC) (i.e. Σ MPC+MEC) was 1.22 ($cents/kWh). Thus, MSC is significantly greater than the established social marginal benefit (SMB) of 0.089 ($ cents/kWh); hence, we conclude that the burden of social welfare loss is highly significant, making thermal power a non-sustainable and economic energy source.

Tech-advancement Vs. Online Sexual Activities Country-wise: Market Economic Assessment under Welfare Analysis

Internet is a blessing for humankind where one can have all good-things rather bad-things from it. It is easy to get stuck into dark-&-ugly world of civilization with just a click to online-sexual-activities—Pornography and Online-live-sex. Besides emotional-problems, it has linkages with today’s high-rise-rate of divorce, rape, family-conflicts in society country-wise such as Bangladesh. For policy-guidance, this study analyses basic issues of Online-sex-market in terms of marginal-damage analysis under neoclassical partial equilibrium demand-supply theory. It further analyses the reasons of disparity between social-cost and private-cost by conventional marginal-damage analysis. Findings show that because of online-sex-activities, marginal social-costs are higher than marginal private-costs. Continuation of increasing it in Bangladesh, results a higher welfare-loss incurred from higher social-costs. Because of its high rise demand due to continuation of rising per-capita-income and having easy-access to supportive-factors, prices of services are becoming upward-trends, which dominate producer-surplus. Service-providers generate high revenues and consumers face high market-prices, which create higher deadweight-losses. Thus, there is an urgency for national policy-design. Probable-policies can advance in three-folds a) how to quit online-sex b) how to perform treatment of online-sex-addiction and c) how to prevent newcomers. Besides having effective-monitoring, raising awareness and engaging public, Internet-companies & officials, calling for Conferences may play significant-roles country-wise.

Do Two Electricity Pricing Wrongs Make a Right? Cost Recovery, Externalities, and Efficiency

Economists favor pricing pollution in part so that consumers face the full social marginal cost (SMC) of goods and services. But even absent externalities, retail electricity prices typically exceed private marginal cost, due to a utility’s need to cover average costs. Furthermore, the SMC of electricity can fluctuate widely hour-to-hour, while retail prices do not. We show that residential electricity rates exceed average SMC in most of the US, but there is large geographic and temporal variation. This finding has important implications for pass-through of pollution costs, as well as for policies promoting dynamic pricing, alternative energy, and reduced electricity consumption. (JEL D62, L94, L98, Q42, Q53)

Effluent Gases Emission from Brickfields in Bangladesh: Policy Guidance Underpinning Bioethical Grounds Mitigating Emission Levels

Recent years’ rapid urbanization and then rural to urban migration have created increasing demands of bricks usages in Bangladesh. However, brick industry has been largely using inefficient, dirty technology and burns woods-coal. It injects huge volume of effluent gases namely CO2, SO2, NOx, CH4, CO etc., in atmosphere. Governments, particularly developing countries have lost the ability to effectively regulate environmental issues, while at the same time corporations have gained unprecedented influence over many facets of society. On this aspect, Bangladesh is no exception. For policy guidance underpinning ethical grounds on the issue, this study analyzes the basic issues of CO2 emission from brickfields in terms of marginal damage (MD) analysis. Findings show that the marginal social costs are higher than marginal private (producer of bricks) costs where brickfields are benefiting with the expense of Bangladeshi society as a whole. As time passes by, rises of brick-prices have been causing upward trends of welfare losses where producers’ surpluses are dominating in the total surplus. This economic situation has been causing higher deadweight loss year after year. Addressing the issues, national strategies and policy actions underpinning bioethical grounds are needed. Reforestation efforts can be achieved in multi-faucets: brick-fields’ charity, government policies on planting trees and policies on motivational efforts inspiring citizens of Bangladesh. Bioethics responsibility trainings in multi-faucets are needed where government’s roles in designing program(s) can be instrumental. Motivational policy can be: i) inspiring celebration individual’s “Birthday, having 1st child in family and Event of marriage” by planting trees, ii) forcing to utilize green tech in brick kilns and iii) policies conducting academic research where financial supports are in need.

A Critical Analysis of Government Subsidies in India – Special Reference to Non-Merit Subsidies

Subsidy is a simple fiscal tool, obtainable to the policy makers, to assist promotes production, employment and social welfare. All countries, irrespective of their financial systems, have been using this tool, according to the objectives and conditions that exist in their personal economies. The taxes and subsidies, which are in strength are apprehensive with counteractive measures that could be instituted in theory to bring marginal private costs, or benefits, more closely into arrangement with marginal social ones. Subsidy refers to the concession given by the government to make accessible the important items to the public at inexpensive prices, which is frequently much below the cost of producing such things. Specific entities or those can collect these subsidies in the form of tax rebate or cash payment. This helps to keep necessary items such as food, fuel, fertilizers within the reach of deprived people.

CO2 Emission from Brickfields in Bangladesh: Can Ethical Responsibility by Doing Reduce Level of Emission?

Recent years’ rapid urbanization and then rural to urban migration have created increasing demands of bricks usages in Bangladesh. However, brick industry has been largely using inefficient, dirty technology and burns woods-coal. It injects huge volume of CO2 in atmosphere. For policy guidance on the issue, this study analyzes the basic issues of CO2 emission from brickfields in terms of marginal damage (MD) analysis. Findings show that the marginal social costs are higher than marginal private (producer of bricks) costs where brickfields are benefiting with the expense of Bangladeshi society as a whole. As time passes by, rises of brick-prices have been causing upward trends of welfare losses where producers’ surpluses are dominating in the total surplus. This economic situation has been causing higher deadweight loss year after year. Addressing the issues, national strategies and policy actions are needed. Reforestation efforts can be achieved in multi-faucets: brick-fields’ charity, government policies on planting trees & policies on motivational efforts inspiring citizens of Bangladesh. Motivational policy can be: i) inspiring celebration individual’s “Birthday, Having 1st child in family and Event of marriage” by planting trees, ii) forcing to utilize green tech in brick kilns and iii) conducting academic research where financial supports are in need. Keywords: brickfields, effluent gases emission, causes social costs & deadweight loss, reforestation, motivational efforts of government policies

Headwinds and Tailwinds: Implications of Inefficient Retail Energy Pricing for Energy Substitution

Electrification of transportation and buildings to reduce greenhouse gas (GHG) emissions requires massive switching from natural gas and refined petroleum products. All three end-use energy sources are mispriced due in part to the unpriced pollution they emit. Natural gas and electricity utilities also face the classic natural monopoly challenge of recovering fixed costs while maintaining efficient pricing. We study the magnitude of these distortions for electricity, natural gas, and gasoline purchased by residential customers across the continental US. We find that the net distortion in pricing electricity is much greater than for natural gas or gasoline. Residential customers in much of the country face electricity prices that are well above social marginal cost (private marginal cost plus unpriced externalities), while in some areas with large shares of coal-fired generation, prices are below SMC. Combining our estimates of marginal price and SMC for each of the fuels with a large survey of California households' energy use, we calculate the distribution of annual fuel costs for space heating, water heating, and electric vehicles under actual pricing versus setting price at SMC. We find that moving prices for all three fuels to equal their SMC would significantly increase the incentive for Californians to switch to electricity for these energy services.

Black carbon and other pollutants from brickfields country-wise: Impact assessment and policy guidance under welfare analysis

The brick industry in developing world is a vast, coal burning and polluting industry. Nearly 1,500 billion bricks are produced globally each year where 87% are from Asia. China dominates the world in producing bricks using coal combustion and woods as fuels where Australia placed the last. Bangladesh placed the 5th in the world, and it mostly uses woods as fuels. These industries are owned privately. It is a type of industry that is mostly driven with business mentality without emphasizing the hygiene and health aspects where government laws are barely active in practices where rapid urbanization has been increasing demand of bricks. But, in most cases, this industry uses inefficient and dirty technology that causes environmental externalities. Brick-kilns inject huge volume of effluent gases. It causes depletion of atmospheric O2 level. Addressing the issue for policy guidance, this study first analyzes the consequences of these externalities in terms of marginal damage (MD) under neoclassical partial equilibrium demand & supply theory. It further analyzes the reasons of disparity between social-cost and private-cost by conventional marginal damage analysis. Findings show that due to gases emission from brickfields, the marginal social-costs are higher than marginal private-cost. In this economic dilemma, brick-kilns are benefiting with the expense of human-society country-wise. As it has been going on, the rises of brick-prices have been causing upward trends of welfare losses where producer surplus is dominating the total surplus. This consequential economic situation has been causing higher deadweight loss year after year. The reason is that the bricks-customers distribute this expenditure away from now more expensive bricks. Now there is an urgency for national policy actions for ensuring cleaner & sustainable brick production. On this aspect, reforestation efforts can be achieved in multi-faucets including brickfields’ charity and govt. policies on planting trees and for motivational efforts inspiring citizens of this country. These motivational efforts can be in multi-faucets: (a) inspiring “birthday celebration by planting trees”, (b) forcing to use green Tech in brick kilns and (c) conducting research in both phases of govt. and academicians where financial supports can be inspirational.

Endogenous public and private leadership with diverging social and private marginal costs

AbstractWe investigate endogenous timing in a mixed duopoly with price competition and different social versus private marginal costs. We find that any equilibrium timing patterns—Bertrand, Stackelberg with private leadership, Stackelberg with public leadership, and multiple Stackelberg equilibria—emerge. When the foreign ownership share in a private firm is less than 50%, public leadership is more likely to emerge than private leadership. Conversely, private leadership can emerge in a unique equilibrium when the foreign ownership share in a private firm is large. These results may explain recent policy changes in public financial institutions in Japan. We also find there is a nonmonotonic relationship between the welfare advantage of public and private leadership and the difference between social and private marginal costs for a private firm. A nonmonotonic relationship does not emerge in profit ranking. Similar results are obtained under quantity competition, although some properties are different.

Why Technologies Often Fail to Scale: Policy and Market Failures behind Limited Scaling of Alternate Wetting and Drying in Rice in Bangladesh

Rapid expansion of groundwater use for irrigation for dry season rice production in Bangladesh has led to overuse, deterioration of groundwater quality, increased cost of irrigation, and higher greenhouse gas emissions. The divergence between marginal private and social cost of irrigation due to market failures in the presence of these externalities, has resulted in excessive use of groundwater. A combination of policy reforms and improvements in irrigation practices are hence needed to reduce irrigation water use. The paper analyses why an improved irrigation practice, known as “alternate wetting and drying (AWD)” that can potentially reduce irrigation water use substantially, has failed to scale despite widespread testing and promotion in Bangladesh for over a decade. The main reason for this failure to scale is the lack of economic incentives to save water as pricing is based on per unit area irrigated, not on the amount of water used. This paper highlights the dynamics of the water market and pricing in Bangladesh, along with biophysical and social constraints to farmer adoption of AWD. It also proposes changes in policy incentives, new directions for crop and water management research, and institutional reforms for wider adoption of AWD and other water-saving practices.

The Welfare Loss of Subsidies in Global Electricity Markets

Subsidies induce a market inefficiency by creating a deadweight loss, since supply and demand are out of equilibrium. In 2016, electricity subsidies were the largest component of the total global energy subsides, with an estimated 128 billion USD out of 287 billion USD. Electricity generation is also directly responsible for a quarter of global greenhouse gas emissions. Under baseline assumptions about supply and demand elasticities and employing the latest available data, we first estimate the welfare loss of global electricity subsidies and then estimate the global environmental costs imposed by electricity consumption. We find that the total annual deadweight loss worldwide in 2016 was 12.7 billion USD. Incorporating external costs stemming from excessive consumption, which is a result of prices that are less than the private marginal cost, leads to a total annual welfare loss of 44.6 billion USD. This number accounts for 4.8% of total electricity market value in electricity-subsidizing countries. Furthermore, we find that the worldwide electricity consumption imposes environmental costs of at least 652.8 billion USD annually; thus, the total annual costs in the global electricity markets are nearly 700 billion USD.

The Effect of Awareness and Observability on the Non-contractible Investment of a Regulated Natural Monopoly

This paper studies the joint effect of the regulator’s ex-ante awareness and ex-post ability to observe on the non-contractible investment activities of a natural monopoly with private marginal cost information. We show that the investment activities are lower when the regulator is ex-ante aware of their existence and ex-post able to observe them than when the regulator is never aware of, and never able to observe, them. This result, which points to the regulated firm’s prevention of ratcheting, is in line with an earlier finding of Tirole (J Polit Econ 94:235–259 1986) obtained in a bargaining model of procurement with two-sided asymmetric information. We also find that the producer welfare and the social surplus is always ex-ante higher when the regulator is unaware of its investment activities than when she is aware. Moreover, our computations show that depending on the specifications of our model, the unawareness of the regulator may positively affect the expected consumer and social welfares, as well.

The Friedman Rule in the Laboratory

We explore the celebrated Friedman rule for optimal monetary policy in the context of a laboratory economy based on the Lagos-Wright model. The rule that Friedman proposed can be shown to be optimal in a wide variety of different monetary models, including the Lagos-Wright model. However, we are not aware of any prior empirical evidence evaluating the welfare consequences of the Friedman rule. We explore two implementations of the Friedman rule in the laboratory. The first is based on a deflationary monetary policy where the money supply contracts to offset time discounting. The second implementation pays interest on money removing the private marginal cost from holding money. We explore the welfare consequences of these two theoretically equivalent implementations of the Friedman Rule and compare results with two other policy regimes, a constant money supply regime and another regime advocated by Friedman, where the supply of money grows at a constant k-percent rate. We find that, counter to theory, the Friedman rule is not welfare improving, performing no better than a constant money regime. By one welfare measure, we find that the k-percent money growth rate regime performs best.

Identification and Estimation of a Search Model: A Procurement Auction Approach

We propose a non-sequential search model with a continuum of consumers and a finite number of firms. Both consumers and firms are heterogeneous. Consumers differ in search costs. Firms have private marginal costs of production. We show that an equilibrium price dispersion can arise in this model as firms employ a Bayesian Nash pricing strategy. We provide conditions to identify the model using price and another supply side data (such as market share). Our identification strategy is constructive. We derive the uniform rate of convergence of our estimator.

The Effect of Observability on the Noncontractible Investment of a Regulated Firm

We study the effect of observability on the noncontractible investment of a regulated firm with private marginal cost information. We show that the observability reduces investment, pointing to the regulated firm's prevention of ratcheting. This result, which is in line with an earlier finding of Tirole (1986) obtained in a bargaining model of procurement with two-sided asymmetric information, reveals that 'underinvestment due to observability' is independent of whether only the investing firm or all of the parties affected by its investment decision have some private information.

The Social Marginal Cost Curve and a Corner Solution of the Second-Best Level of Public Good Provision: A Review and an Extension

Summary Assume that the private goods and the public good are weakly separable, the private goods are gross complements, and the private utility function is a homogeneous of degree one function with constant elasticity of substitution. We demonstrate that, under commodity taxation, the social marginal cost curve of public good provision is initially upward sloping and eventually becomes downward sloping. Moreover, the social marginal cost eventually falls below the private marginal cost. These unusual properties arise from a demand-shift effect: An increase in the tax rate raises the marginal willingness to pay for the public good since it pushes up the unit cost of private utility, hence making the public good more attractive than private goods. In other words, the supply of the public good creates its own demand when the funding to cover production costs is raised through distortionary commodity taxes. It follows that there may exist three solutions to the first-order condition for the second-best problem: two of them are interior solutions and one is a corner solution.

Marginal costs of freeway traffic congestion with on-road pollution exposure externality

The health cost of on-road air pollution exposure is a component of traffic marginal costs that has not previously been assessed. The main objective of this paper is to introduce on-road pollution exposure as an externality of traffic, particularly important during traffic congestion when on-road pollution exposure is highest. Marginal private and external cost equations are developed that include on-road pollution exposure in addition to time, fuel, and pollution emissions components. The marginal external cost of on-road exposure includes terms for the marginal vehicle’s emissions, the increased emissions from all vehicles caused by additional congestion from the marginal vehicle, and the additional exposure duration for all travelers caused by additional congestion from the marginal vehicle. A sensitivity analysis shows that on-road pollution exposure can be a large portion (18%) of marginal social costs of traffic flow near freeway capacity, ranging from 4% to 38% with different exposure parameters. In an optimal pricing scenario, excluding the on-road exposure externality can lead to 6% residual welfare loss because of sub-optimal tolls. While regional pollution generates greater costs in uncongested conditions, on-road exposure comes to dominate health costs on congested freeways because of increased duration and intensity of exposure. The estimated marginal cost and benefit curves indicate a theoretical preference for price controls to address the externality problem. The inclusion of on-road exposure costs reduces the magnitudes of projects required to cover implementation costs for intelligent transportation system (ITS) improvements; the net benefits of road-pricing ITS systems are increased more than the net benefits of ITS traffic flow improvements. When considering distinct vehicle classes, inclusion of on-road exposure costs greatly increases heavy-duty vehicle marginal costs because of their higher emissions rates and greater roadway capacity utilization. Lastly, there are large uncertainties associated with the parameters utilized in the estimation of health outcomes that are a function of travel pollution intensity and duration. More research is needed to develop on-road exposure modeling tools that link repeated short-duration exposure and health outcomes.

Environmental Taxes in the Long Run: An Expository Note

It seems popular to teach that a Pigouvian tax is efficient. This strongly suggests that price-based regulation is the proper benchmark for efficient regulation. However, results due to Carlton and Loury (1980, 1986) question this; when harm depends on scale effects a pure Pigou tax is inefficient regulation in the long run. In this note we make precise that there is an efficient tax scheme for controlling harm as long as social optimum exists. We show that a tax closing the gap between marginal social and private cost is efficient regulation when combined with tax exemption, or combined with a fee. We argue that the efficient tax scheme is practical whenever the ordinary flat-rate Pigou tax is practical.

Research on the Urban Transportation Development in Our Country Based on the Traffic Congestion Pricing

With the development and realization of industrialization and urbanization in the world, urban traffic volume grows rapidly; many big cities face more and more serious traffic problem. As a mean of traffic demand management, traffic congestion pricing has important significance in theory and practice. Traffic congestion pricing can counteract external diseconomy caused by network congestion, and the price of congestion is tantamount to the difference between social marginal cost and private marginal cost. This paper analyzes the economic theory of congestion pricing. Combined the effect of traffic congestion pricing that implemented in the developed countries, it researches the influence of urban transportation development in our country in the future based on the implementing congestion pricing.