Marginal Social Cost Research Articles

Legal and economic perspectives on fair and equitable benefit sharing in the Nagoya Protocol.

Adopted in 2010 as a supplementary agreement to the 1992 Convention on Biological Diversity, the Nagoya Protocol (NP) mandates the fair and equitable sharing of benefits arising from the use of genetic resources provided by Indigenous peoples. Member states must newly enact or amend domestic laws to align with the NP. Consequently, many countries are currently implementing legislative, administrative, and policy measures to ensure fair benefit sharing from the use of Indigenous genetic resources. We examined the inclusion of intellectual property (IP) protection in the sharing of benefits from research and development that utilizes Indigenous genetic resources. The NP does not specify guidelines for IP-related benefit sharing, leaving each member state to establish its own rules. We used an economics-based approach to explore the optimal scope and duration of IP protection for maximizing stakeholder interests, including those of Indigenous peoples, at the national level. The optimal duration of IP protection was when the marginal social cost and benefit of IP protection were equal. When this point occurred varied depending on various factors, such as the type of genetic resources in the country, existence of alternatives, number of users, and competing actors. The optimal scope of IP protection was when the social benefit of investment in fundamental research equaled the social benefit of application development. Likewise, this point of implementation also varied based on various factors, such as the type, uniqueness, potential for further discovery, and diversity of providers in the country.

Can today’s and tomorrow’s world uniformly gain from carbon taxation?

Climate change will impact current and future generations in different regions very differently. This paper develops the first large-scale, annually calibrated, multi-region, overlapping generations model of climate change and carbon policy. It features region-specific temperature and damage functions with the phased impact of emissions on global and regional temperature calibrated to the latest scientific evidence. Absent policy, climate change may, under high-damage scenarios, dramatically reduce GDP in most regions, with India, Brazil, and the South Asian Pacific suffering long-term catastrophic damages. Carbon taxation, coupled with region- and generation-specific transfers, can both correct the carbon externality and raise the welfare of all current and future agents across all regions by 4.3 percent. The impact on the use and duration of fossil fuels is dramatic as is the reduction in the path of global emissions. However, achieving completely uniform welfare gains leaves future generations in particular regions facing exceptionally high compensatory payments. Fortunately, a carbon tax-cum redistribution policy that limits this burden for any generation in any region to less than 10 percent, measured on a consumption-equivalent basis, can deliver a 4.0 percent or higher welfare gain for all peoplekind — present and future. However, carbon taxes set through time, at carbon’s marginal social cost, do far too little to mitigate climate change unless all major emitters, particularly China, adopt them and do so immediately.

Harmonizing fiscal policy: Indirect taxes and global public goods

AbstractThis article focuses on the welfare effects of the interaction of a rule of indirect tax harmonization under the destination principle and the provision of public goods that are global in nature. It stresses the role of international transfers between governments set in order to equalize the social (i.e., worldwide) marginal cost of public funds across countries. Under this condition, it is shown how the combination of the tax and expenditure side of such a “harmonizing fiscal policy” can give rise to a potential Pareto improvement. This requires considering aggregate revenue effects (and the ensuing effects on the provision of public goods) of the fiscal reform jointly with under/over provision of public goods in the (first‐best) Samuelson sense.

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.

Macroeconomic and Institutional Reforms of Energy Pricing Policies in Nigeria; How Effective?

The objective of this paper is to examine the impact of institutional reforms in Nigeria on energy pricing policies, energy supply, and fossil fuel subsidy initiatives, comparing them with global practices. This assessment scrutinizes Nigeria’s commitment to its predetermined goals by evaluating how these policies influence socioeconomic welfare, consumer productivity, and empowerment. Furthermore, the study reviews the primary challenges facing Nigeria’s energy sector, examining their macroeconomic dimensions and the impact of governmental institutional reforms. By utilizing variance decomposition (VDC) within the vector error correction model (VECM), the paper tests the influence of energy pricing and various reforms on key macroeconomic variables. This analysis is complemented by Granger causality tests to explore long-term cause-and-effect relationships among the variables. Additionally, the assessment employs inverse roots of AR to estimate the marginal social cost of reduced energy subsidies. The investigation also extends to using impulse response function techniques to explore the economic and environmental implications of energy subsidies and carbon emissions in Nigeria. The study highlights limitations such as technological constraints and inadequate regulatory or market-based policies, which diminish policy effectiveness. Consequently, the study recommends the development of more robust energy conservation policies, emphasizing the need for well-coordinated frameworks addressing climate change. It also calls for diversification in energy mixes.”

Tax competition with two tax instruments — and tax base erosion

We consider a world in which countries apply optimal taxes on mobile capital and savings (like in Bucovetsky and Wilson, 1991). Firms and savers may underreport income to avoid or evade taxation. We show that, even in the presence of underreporting, the equilibrium under tax competition may still be constrained-efficient (in the sense that there is no scope for welfare-enhancing tax coordination). This is the case if the marginal social costs of underreporting savings and investment income are equal. The model demonstrates that, if source-based taxes on capital are inefficiently low, as is often assumed, taxes on savings must be inefficiently high. Constrained-efficient tax policy minimizes the social cost of underreporting. The results are robust to introducing taxes on profit or labor income, if these types of income can be underreported as well. We conclude that commonly held assumptions on the need for coordination under tax competition need to be revised or qualified.

Economic Benefits and Challenges: Funding Tertiary Education for Economic Development in Greece

It is often proposed that governments should devote resources toward tertiary education to the point where marginal social costs equal marginal social value. A critical challenge in evaluating the viability of financing higher education correlates with the difficulty of connecting educational inputs with output. The argument for investment in tertiary erudition hinges on technological advances and demographic change, whereby individuals require periodic retraining within the information age, and increasing labor productivity could reduce the effects of an aging population. The aim of the present work was to view the current system of funding tertiary education in Greece and review some evidence on the economic benefits of funding tertiary education in this Country. In spite of funding obstacles, empirical evidence indicates that graduates improve economic output and social cohesion. Prioritize funding policies for equitable access, and investigate optimal levels of taxpayer subsidy in future research. While allocative problems permeate the higher education sector within different countries, observational and empirical evidence illustrate that graduates improve economic productivity and increase the tax revenues. Overall, funding tertiary education promotes economic development in the global knowledge economy that is undergoing evolution. In addition to having direct effects on the quality of human capital, funding for postsecondary education also has indirect effects on research infrastructure, innovation and economic growth. Investments in higher education and research and development are essential for fostering economic growth, technological progress, and competitiveness.

ЭКОНОМИЧЕСКИЕ ПОДХОДЫ К ОБЕСПЕЧЕНИЮ ЭКОЛОГИЧЕСКОЙ БЕЗОПАСНОСТИ ПРИ ЛИКВИДАЦИИ ПОСЛЕДСТВИЙ ЧС В РЕГИОНЕ (НА ПРИМЕРЕ ЛИПЕЦКОЙ ОБЛАСТИ)

The article deals with the issue of increasing environmental and economic damage from the entry into the atmospheric air of pollutants that have an adverse effect on public health and the environment in one of the subjects of the Russian Federation. An assessment of the structure of pollutants is given and indicators of emissions are given. It is proved that the expert assessment of damage and the amount of polluting emissions indicate the need to improve approaches to ensuring environmental safety. The authors also provide a comparative table of damage indicators for 2020-2022. It is said that the mechanism of reinsurance of disaster risks also seems to be an effective tool to compensate for damage to third parties when the insurance company does not have the necessary funds, and the environmental and economic damage itself is huge. It is also noted that the insufficient amount of funds transferred by enterprises for air pollution is explained by low rates of environmental payment. To fully compensate for environmental damage, it is proposed to introduce an environmental tax. The environmental tax rate should be equal to the marginal social costs in order to achieve a balance between the volume of production of the taxpayer enterprise and the losses of society arising from this production.

The (alleged) environmental and social benefits of dynamic pricing

Dynamic pricing programs have the potential to better align the price and social marginal costs of electricity production in the presence of time-varying external impacts on environmental quality. Using a particular dynamic pricing implementation, we show that the resulting impact on short-term operating costs and emissions is at best ambiguous. Moreover, we highlight the difficulty in quantifying impacts across geographic regions even in ideal scenarios where data is plentiful and the behavioral response can be estimated precisely using a randomized control trial of customers of an electric utility. Our findings point to price-induced reallocation of electricity consumption within a day as the underlying causal mechanism that may increase net emissions depending on the source-generation mix of a region.

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)

Rationed price controls and “prices versus quantities”

AbstractWe interpret Weitzman's prices‐versus‐quantities model as applying to a private‐good market, and we formulate a “rationed price control,” with quantity determined endogenously as the minimum of supply and demand. With efficient rationing and no externalities, the optimal rationed price control exceeds the price at the expected demand–supply intersection if (the numerical value of) the demand slope curve exceeds the supply slope, and is less than this level for the reverse ordering of slopes. If uncertain demand is steeper than deterministic supply, or if uncertain supply is steeper than deterministic demand, expected welfare is greater with the optimal rationed price control than with the optimal quantity control. We obtain, for any specified price level, a partial ranking of the rationed price control and alternative simple price controls. Extending the model to incorporate externalities, we show that, for demand steeper than supply, with a negative externality on either benefit or cost, the optimal rationed price control exceeds the price at the expected intersection of marginal social benefit and marginal social cost; a converse result also obtains. For an example with inefficient rationing, we show that the optimal pure price control always exceeds the price at the expected intersection of demand and supply.

The design of the intertemporal trading ratio of carbon quotas

Carbon emission trading achieves both economic and environmental benefits. The imbalance between quota supply and demand restricts the development of the carbon market. The key to solving the issue is to set a reasonable intertemporal trading ratio. Currently, the study of carbon trading ignores the influence of environmental externalities, which leads to the deviation of market participants' behavior choices and government policy making. Considering the influence of non-price factors, taking environmental externalities as the cut-in point, use the optimal control method to analyze the issue of carbon quota conversion, and to make clear the driving factors and mechanism of the intertemporal trading ratio. Results show that the condition of choosing an optimal intertemporal trading ratio is when the value path of per-unit carbon emissions is equal to the marginal cost path of emission reduction. The intertemporal trading ratio depends on the firm discount rate, the natural attenuation rate of carbon emissions, the ratio of the social marginal damage value to the social marginal cost of emission reduction, and the combination effect among marginal cost of emission reduction, marginal profit of production from purchasing carbon quota and price of carbon transaction. The effect of different driving factors on the intertemporal trading ratio is heterogeneous in different situations. The results provide a reference for setting reasonable parameters of carbon trading policy.

Assessing the Environmental Profit and Loss of Cotton T-shirts

ABSTRACT Wastewater and pollutants emitted from cotton fabric production have generated several impacts on the ecosystem and human health. The Environmental Profit and Loss (EP&L) methodology was proposed to assess the environmental performance of a business by converting various environmental impacts into social marginal cost (SMC). This study applied the EP&L method to calculate the SMC of 1,000 kg of knit cotton T-shirts from the knit-yarn production to the end-of-life stage. The results show that the highest SMC was that of greenhouse gas emissions, followed by water pollution and water use which were $40.2, $28.3, and $0.04, respectively. In terms of production processes, the SMC of batch dyeing was the highest, and compaction was the stage with the least SMC. Through analysis of results, the SMC of cotton T-shirt was found to be closely related to the production activities of enterprises and the use of consumers. Findings of this study are of practical importance and can be used as a reference for green production of cotton products.

Electricity Tariff Rebalancing in Emerging Countries: The Efficiency-equity Tradeoff and Its Impact on Photovoltaic Distributed Generation

Existing tariff schemes often fail to achieve basic economic objectives. They set prices per unit that either exceed or fall short the social marginal cost and produce unfair distributional outcomes. In many cases, electricity rates also contribute to unsustainable fiscal deficits due to the (almost) generalized electricity subsidies. Moreover, inefficient residential tariffs do not favor the adoption of green technologies and the investment in energy efficiency improvements. We argue that the efficient deployment of green technologies, and more generally, the clean energy transition, will require electricity tariff reforms. In this paper, we use household level data and hourly industry data from Mexico to show how more efficient pricing mechanisms (such as a two-part tariff scheme in the context of efficient nodal pricing), combined with well-design environmental regulations (e.g., net-metering schemes) and correctly targeted transfer programs (e.g., means testing mechanisms) can improve economic, social, and environmental outcomes significantly, all at once.

A Comparative Mathematical Study of the Relationship Between Marginal Social Cost and Pigouvian Tax in the Presence of Commodity and Wage Taxes: Putting Ramsey theorem into Practice

The aim of this paper is to examine the relationship between Pigouvian tax and marginal social cost in the presence of distortionary taxes such as commodity and wage taxes in a Ramsey setting. The Ramsey theory highlights the amount of tax required to raise a given revenue for the government which also maximizes household utility. Previous research in this regard has been carried out either under homogeneous household preferences or constant marginal social cost. In this paper we go further by analyzing the relationship between Pigouvian tax and marginal social cost in the presence of commodity taxes when households have heterogeneous preferences as opposed to being assumed homogeneous. In addition, we also consider the relationship between Pigouvian tax and marginal social cost in the presence of wage tax when the marginal social cost is considered as a variable depending on Pigouvian tax as opposed to being considered a constant in previous literature. The results indicate that the Pigouvian tax in the presence of wage tax is higher when the marginal social cost was considered a variable as opposed to a constant. Under certain conditions, in the presence of commodity taxes it was observed that the value of the Pigouvian tax is higher when households have heterogeneous preferences as opposed to homogeneous preferences. The mathematical models used in this study enable to see the factors, such as homogeneity/heterogeneity of household preferences and marginal social cost assumed as a variable as opposed to a constant, that impact the dynamics in determining the optimal Pigouvian tax.
 Keywords: Ramsey Theory, Pigou Tax, Marginal Social Cost, Lagrange Multiplier

Optimal energy taxes and subsidies under a cost-effective unilateral climate policy: Addressing carbon leakage

We analyse how a country pursuing a unilateral climate policy may contribute to a reduction in global CO2 emissions in a cost-effective way. To do so its system of energy taxes and subsidies must account for leakage of emissions from the domestic to the foreign economy. We focus on leakage occurring via international trade in electricity and via shifts between domestic and foreign production of other goods. The optimal tax-subsidy scheme is based on an intuitive principle: Impose a uniform carbon tax on all additions to global emissions caused by changes in domestic production and consumption of energy, including additions to emissions occurring via shifts in international trade. Emissions from the sector exposed to foreign competition should be taxed at reduced rates to avoid excessive carbon leakage, and a part of the carbon tax on electricity should be levied at the consumer rather than the producer level to ensure taxation of the carbon content of imported electricity. Producers of renewables-based electricity should receive a subsidy to internalize their contribution to the reduction of global emissions. In other sectors emissions should be taxed at a uniform rate corresponding to the marginal social cost of meeting the target for emissions reduction. Simulations calibrated to data for the Danish economy suggest that redesigning energy taxes and subsidies to account for carbon leakage can generate a welfare gain.

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.

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.