Externalities
Definition
- doing something that affects anyone else in any way
- neither pays nor receives any compensation
- negative vs positive externality
- externalities often not taken into account when making economic decisions
- social cost / social benefit
Externality Pollution
- for every unit of good produced a pollutant enters the atmosphere
- social cost increases
- equilibrium shifts along the demand line
- solutions for this issue
- CO2 Tax → most elegant solutions
- Regulations, either a production cap or a price cap
- take social costs into account
Correcting market failure
- social norms of moral behaviour
- spitting on floor
- throwing garbage on the floor
- charities
- self-interest
- social contracts
Econom(etr)ics and climate change research
Coase Theorem
- there is a dog, person A loves the dog, person B hates the dog
- love 1000, hate 700
- social optimum → dog should stay
- even if person B may throw the dog out, person B can be compensated by person A
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700 = 701 and greater
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- prerequisite: free negotiation between parties
- just thought experiment
- practical application almost impossible → all people would need to agree on something
- why private solutions do not always work
- one may lie
- one may not be able to evaluate other estimate
- asymmetric information → not everyone has the same knowledge
- government intervention
- command and control policies → directly modify behavior
- market policies → takes that modify behavior
Shared Socioeconomic Pathways
- Challenges to Mitigation
- Companies stay dirty
- Challenges to Adaption
- → Jesus Crespo created a model to project GDP and GDP per Capita for all countries until 2100
- Population projections from WHO
- Population Pyramids
- Assumptions for Projection
- business and usual
- e.g. Kenia will evolve as other countries have historically
- Assumptions for Projection
- most important country for global population: Nigeria
- population peak in Nigeria by 2080
- previous projection was 2070 → too optimistic, female education is not going as well as expected
- new Data will be published in the COP24
Environmental Depletion
Example of Deforestation
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also applicable to other metrics (air pollution, CO2 emissions)
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Core Question: How do rich countries changes when increasing its wealth? How is deforestation evolving?
- first argument: richer → more energy and space requirements
- second argument: richer → more care about natural environment and pretty places
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cheap answer: Forest Cover vs GPD per Capita
- relation: as GDP increases the forest cover decreases
- first issue: Endogenuiy
- causal effect not possible from simple question
- laboratory solution
- 2 comparable plots of land
- give one plot to a poor country, the other plot to a rich country
- after X years analyse the difference in land use
Cross Border Deforestation
Cross Border Deforestation
Link to original
- Cross-Border Deforestation Index
- Satellite Images for forest cover
- difference trees from bushes and barren land
- measure Forest Cover from both countries close to border
- issue: External Validity → Internal vs External Validity
- across the border the regional difference in GDP per capita might not be as different as the rest of the country
- borders are likely to run along a natural change in geography (e.g. mountain ranges)
- land is not perfectly comparable on both sides of the border
- solution: colonial borders → straight lines
- another issue: most areas with colonial borders forests are not a big thing
- solution: another project mapping areas of homogeneous response units:
- same slope, terrain, resources across borders
- after combining response units with deforestation data we have enough data points for a good experiment
- Brazil vs Bolivia is good example
- China: depending on which border the difference is great
- Dominican Republic: Wild Fires during Slave Revolts decimated forest cover
- outcome:
- forest cover decreases until approximately Brazil’s current GDP per capita and increases from then onward