Question

1. Externalities. The Trump administration is trying to reverse an Obama administration rule restricting mercury pollution from power plants. (Mercury causes brain damage, learning disabilities and other birth defects in children; coal-fired power plants are the major source of environmental mercury.) The Supreme Court required the Obama administration to perform a cost-benefit analysis on the rule and the Trump administration claims that the economic benefits from reducing mercury are less than the costs of cleanup. In making this argument, the administration chooses not to count among the benefits reduced healthcare costs, or the benefits of breathing cleaner air and drinking cleaner water.
   1. Should all pollution to be prevented? Or would there be an “efficient” level of pollution greater than zero? What would constitute an efficient level of pollution?

2. Evaluate the Trump administration’s decision: is this based on objective cost-benefit analysis, that is to say a judgment based on conclusions that would be accepted by any reasonable person? Can we assume that elected politicians will reach conclusions based on objective analysis?

3. How might the market lead to the efficient level of pollution if there are full and clear property rights? How might this operate between pregnant women, young children, and the owners of coal-fired power plants?

4. Why didn’t the market prevent this toxic pollution without government involvement? Read “Mapping Environmental Injustice” (Real World Micro, 6.7.) Why is pollution concentrated in poor and nonwhite neighborhoods? In what ways does this reflect a failure of the market solution? Given your argument in part B above, which do you think is better: government regulation or market solutions?

Answer 1

a. All pollution cannot be prevented in the industrial economy. However, the government can opt to maintain an optimal level of pollution in the environment. The efficient level of pollution in the environment = The quantity at which its total benefits increase its total costs by a large amount.

b. Trump administration's decision does not seem to be based on objective analysis. The judgement shows a deliberate attempt to counter Obama government's change of plan. The decision will require substantial stands on the costs and benefits involved in including mercury in agriculture, as the environmental and health effects of mercury is known to be quite dangerous.

c. The government might be able to provide property to owners of coal fired power plants to re-establish the plants outskirts of the city. The government can also make available facilities for people say having small population to rehabilitate into a different place with lower levels of pollution. Government can also regulate the coal plants to maintain a certain efficient level of pollution. Government can impose pollution tax, government may introduce pollution permits, which allows the coal farm plant owners to resettle the plant away from the city, where they are allowed certain measured amount of pollution.

d. Markets can also intervene and provide solutions to environmental problem. However, it is feared by environmentalists that market failure in maintaining the efficient level of pollution, or providing pollution permits at low cost to make profit, might just run the economy upside down. Pollution is mostly concentrated in poor and non-white neighbourhoods because the rich white people can afford to move away from pollution filled areas, as these places of inhabitation are available at cheaper costs only the poor can afford housing there. Also the poor living in the neighbourhood of the plants, often are the employees there too. This reflects a failure of the market solution, as equality of economic social status is not maintained. The poor are left at no mercy of survival in the pollution filled air. Markets can take charge by providing pollution permits and incentives to protect endangered species. This would reduce pollution and clear the air in the neighbourhood of the plants.

Government regulations are a better choice as compared to market solutions as, government regulations are for a greater cause and welfare of all individuals, while market solutions are profit based and may in turn cause more harm to the economic environment than good.