Question

Which do you think is easier, to estimate the marginal benefit or cost of abatement? What are the implications if we are wrong?

Answer 1

The marginal cost of abatement is easier to estimate rather than the computation of the marginal benefit of abatement. As the marginal cost of abatement is computed by computing the cost that the firm has to incur to abate pollution, that is, monetary cost incurred by the firm is easy to calculate.

Whereas, the marginal benefit of abatement is the value that the victims of pollution associated with pollution free environment. And the value is not the monetary value. But a personal value that the individual thinks he/she derives from pollution free environment as no market for pollution exist, which is a subjective judgement. For the true computation of marginal benefit, it is necessary that all the victims truly reveal the benefit from the abatement to the concerned authority. And authority does not commit any error in the computation of total marginal benefit for the society.

If the computation of the marginal benefit of abatement is not correct, then its implication is on the efficiency of society. As the efficiency is achieved where the marginal benefit is equal to marginal cost from abatement. So, if marginal benefit is less than the true value (that is, underestimation) then the outcome resulted from equating it to true marginal cost will result in abatement less than the efficient level of abatement. And if marginal benefit is more than the true value (that is, overestimation) then the outcome resulted from equating it to true marginal cost will result in abatement more than the efficient level of abatement. Thus, efficiency to be attained by society depends on the true computation marginal benefit from abatement.