ECO 240 Ch 4 The Economic Theory of Pollution Control: The Optimal Level of Pollution

What would shift the MCC-curve? Changes in

1. pollution control technology 2. resource substitution 3. residual recycling 4.production technology

the optimal level of waste or pollution occurs where

MCC = MDC

Can the market on its own get us to the optimal level of pollution (waste) where MCC = MDC?

No because the firm will ignore MDC and minimize MCC and the level of pollution will be definitely > the optimal level of pollution

Reasons why the optimal level of pollution may not be ecologically desirable:

Reason 1: The economic optimum is achieved by sole consideration of human preference (willingness to pay) of environmental quality. Reason 2: The standard economic approach to pollution control may put more emphasis on pollution cleanup than pollution prevention. Reason 3: In situations of irreversible and uncertain ecological changes, the optimal level of pollution may not adequately safeguard the interests of future generations Reason 4: Firms (polluters may not choose the "best" technology to control pollution The precautionary Principle—where ordinary cost-benefit analysis would fail

Examples of pollution control costs

Sewage treatment facilities, smoke stacks, soundproof walls, catalytic converters, renewable energy resources

TWDC =

TPCC + TPDC

What if the level of waste is where MDC > MCC?

Then it is cheaper to control the cost of the waste compared to the damage being done by the pollution and so level of waste should be decreased

What if the level of waste is where MCC > MDC?

Then the costs of pollution are too high compared to the damage being done to the environment and so the level of waste should be increased

recall that pollution damage costs are externalities:

costs incurred by members of society who had nothing to do with the economic activity causing the waste

MCC is the marginal control cost: this is the

increase in pollution control costs when the amount of waste is decreased by one unit

why does MDC increase?

increased waste reduces the ability of the environment to assimilate the negative effects of waste

as waste is reduced, the marginal control cost

increases and so the MCC-curve is downward-sloping

What are examples of pollution damages?

losses of or damage to plants and animals and their habitats; aesthetic impairments; accelerated deterioration to physical infrastructures; loss of biodiversity; harmful effects on human health

where MCC = MDC, the total waste disposal cost (the sum of total control and damage costs) is

minimized

the actual level of pollution damage depends on the

nature of the pollutants and the existence of persistent pollutants that have long-term negative effects on the environment

there is an apparent trade-off between TPCC and TPDC. Specifically, a dollar's worth of investment (expenditure) on pollution control technology will make sense if, and only if,

society is expected to be compensated by the benefits to be realized from the avoidance of environmental damage that worth's more than a dollar.

where TWDC is total waste disposal cost (TWDC) and it is the:

sum of total pollution control cost (TPCC) and total pollution damage cost (TPDC).

Pollution control costs

the monetary expenditures by society to improve environmental quality or to control pollution

from a purely economic perspective, pollution control is easily understood if

the problem is viewed as an effort to minimize total waste disposal costs.

MDC is the marginal pollution damage:

this is the increase in pollution damage to the environment when waste is increased by one unit

Pollution-damage costs:

total monetary value of all the various damages from untreated waste put into the environment.

the benchmark level of waste is the

total number of waste units considered for treatment

as waste increases, MDC increases and so the MDC-curve is

upward sloping