Public policy and safety (Chapter 16)

1
Public policy and safety (Chapter 16)

• With perfect information, the law of supply and
  demand would produce the right amount of
  protection from dangerous goods and jobs.
• Since there is not perfect information and
  products and jobs are growing in complexity we
  accept government intervention to compel
  businesses to take precautions.
• Have we strike the right balance.

2
Two approaches

• Incentives
• Fear of litigation (tort system)
• Fear of increase insurance cost (workers
  compensation)
• Direct regulation
• Consumer protection agencies such as the FDA
• Workers safety agencies such as the OSHA

3
Pollution and resource conservation

• Two highly connected global problems
• Government intervention is granted because the
  market on its own would not internalize the cost
  of polluting or overusing natural resources
• Two approaches
• Incentives
• Direct government intervention.

4
Pollution

• Air, water, and soil pollution can have point
  sources (a pipe, stack, or other distinct place
  of origin) or nonpoint sources (like chemical
  runoff from farms and roads)
• Some pollutants are biodegradable. They break
  down into harmless substances and are reabsorbed
  into the natural environment.
• Some undesirable byproducts of human activity can
  be recycled.
• Not all pollutants threaten people with disease
  some such as wind mills simply unpleasing, e.g.
  visual or noise pollution.
• Frequently the victims of pollution are also not
  human.

5
Resource depletion

• Using up of the earths natural wealth. Some
  resources are renewable (e.g. forests) but
  natures restorative powers cannot work if people
  are impatient.
• Since the mid 70s, Americans have been
  intermittently uneasy and complacent about their
  dependence on fossil fuel. Now we are going one
  of those uneasy cycles and oil prices are once
  again breaking price records.
• There has been much progress regarding
  alternative forms of energy but frequently the
  most promising replacements create environmental
  problems of their own, e.g. nuclear power.

6
The tragedy of the commons

• The natural environment is not a public good
  because there is depletion when people use it.
• It is an externality. People who have not
  participated in the transaction gets hurt.
• It is also a common good in need of protection.
  People take much worse care of common than
  private goods.

7
Behaviors and policies to solve the problem

• Educate people to pollute less and to use less
  resources (environmental ethics). Problems
• Too complex (paper or plastic?)
• Disenchantment
• NIMBY
• Government intervention
• Environmental Protection Agency (EPA)
• Since the 1970s
• It is very independent from business
• Approaches
• Imposing direct limits on pollution
• Taxation and subsidies
• Incorporating the market

8
Which approach strikes the best cost benefit
balance

• Imposing direct limits (an engineering
  perspective) There are risks of over-regulation
• Taxation There are strong groups against
  taxation but other countries seem to be using it
  rather effectively
• Creating a market so people can buy and sell the
  right to pollute. Continues to look very
  promising and people has wanted to expand it
  internationally.

9
The battle is not always public interest against
businesses

• Energy efficiency has been use as a good
  competitive strategy by foreign car
  manufacturers.
• The need to invest on clean technologies can be
  used as a barrier of entry for competition.