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
Theory of optimal tax system is relevant for tax policy issue

what are the strengths and limitations of a pluralist society

Valuation Tools - Hedonic Pricing Method Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

QUESTION (i) "Public Sector data is seen as owned by everyone since it has been gathered about and from everyone, often compulsorily". Discuss the concepts of ‘Public data' whe

Problem: (a) What do you meant by public policy? What does the study of public policy involve? (b) How are problems that might lead to public policy identified and defined?

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

The require for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. Suppose these statements to be correct, 1.    How will a successful campai

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

Part I. We have examined federal public policies in the context of the democratic political system in the US.     Types of policy legislation/behavior fall into 3 main types. A

Explain the nature &importance of micro economic?