Externality tax, Public Economics

Externality Tax

The basic principles of environmental policy are based on the theory of externalities. The problem of externality may be interpreted as an unintended and uncompensated side effect of a person's or firm's activity on others. In a formal way, environmental externalities occur when the consumption and production choices of one person or firm enters the utility or production function of another entity without the said entity's consent or compensation.

In many instances, the problem of externality creeps into many government policies having spill over effects. For example, free electricity offered to farmers for irrigation purposes results in over-extraction of ground water, which depletes the water table. In this case the private cost of lift irrigation borne by the farmer is the price paid by him, but a larger social cost is involved in terms of reduced availability of water to others. Overall, there is a difference between private marginal cost and social marginal cost in the presence of externalities; social marginal cost of pollution being always higher than private marginal cost. As the producer of a polluting good takes into account the private cost while deciding on the level of output, there is excessive supply than the optimal level.

Posted Date: 12/18/2012 6:06:01 AM | Location : United States

Related Discussions:- Externality tax, Assignment Help, Ask Question on Externality tax, Get Answer, Expert's Help, Externality tax Discussions

Write discussion on Externality tax
Your posts are moderated
Related Questions
PIGOVIAN APPROACH   Pigou assumed  that  the aim  of  social policy is  to  'promote welfare'. But  in order to simplifL  this, he chose to restrict the range of his inquiry to

Examine issues and decisions using the economic way of thinking; identify appropriate economic policy; communicate economics in written format Topic Upon finishing your d

Question: (a) There appears to be an emerging consensus that the movement towards good governance must include initiatives to strengthen the institutions of government and civi

Explain the stages and various coordination mechanisms involved in policy processes. Discuss various factors that influenced the agenda setting in policy processes.

QUESTION: a) How do returns to scale and returns to factor affect the shapes of the AC in the Long-run and short-run respectively? b) "Standard of living has to be measure

The essence of a national boundary is separate the ‘self' from the ‘other'. Thus natural boundaries, like all institutions have their own set of internal rules which govern their

describe and illustrate the lm-schedule

examine the efficiency of quantitative credit control instruments.

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4