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Category Archive for 'Market Failures'

Among the avalanche of policies that has been enacted in the name of igniting a green economic revolution (taxes, subsidies, loan guarantees, tariffs, …) include mandates for use of particular technologies. Good economists will understand the basic problem with mandates (they are a classic input standard, which is theoretically and empirically inferior to output standard […]

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Let’s return to the original claim: the reason the rich should pay more in taxes is that they were only able to earn their income by hiring people that went to (taxpayer funded) public schools, employ people who drove on (taxpayer funded) public roads and otherwise could not do what they do were it not […]

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According to this figure, global carbon dioxide emissions last year amounted to about 30.4 billion tons. The US contribution was slightly more than 5 billion tons. The IPCC estimates that the damage caused by a ton of CO2 is roughly $25. Putting these together, it seems to be that the annual damage* caused by CO2 […]

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When folks stumbled upon the idea that “externalities” constituted a “market failure” it really breathed new life into the forces of economic interventionism. A quick review, sulfur dioxide emissions/pollution is a classic externality. Why? Energy companies (profit seeking of course) burn coal to produce electricity, which they sell to customers to make a profit. As […]

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One of the few things I am actually an alarmist about is biological pandemics. Given the past 50 years of US history I have no reason to be this way, but as this Megan McArdle post illustrates, there has been a really disturbing trend happening in medicine over the last 30 years: The first shows […]

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All environmental problems arise from the existence of “externalities.” Many of the common worries about water quality, air quality, etc. result from negative externalities – value producing activities generating costs on unwilling third parties. Some worries are also the result of positive externalities – because free-riding is difficult to prevent for certain classes of goods. […]

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The US government reports that each kilowatt-hour of electricity generated in the United States using coal as a fuel source releases about 2.1 pounds of carbon dioxide (that’s 2000 data, presumably coal is cleaner today). If you examine the 4th IPCC Assessment Report (i.e. the “consensus” scientific report) you will find that each metric ton […]

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It is often claimed that “markets fail” because of free-riding. In other words, since creators and entrepreneurs are sometimes unable to “capture” the full-value of what they are creating, they will not be doing enough creating from society’s standpoint. If we were able to have “free-riders” compensate entrepreneurs for all of the great things they […]

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I was asked to give remarks at the annual Colloquium of the Alexander Hamilton Institute in Clinton, NY regarding the establishment of a sister organization here in Rochester. A draft of that talk follows. Forgive me for taking the chance to talk a little bit about economics before I say a few words about our […]

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Last Friday we asked why solar electricity generation requires subsidy. The “economic” case can be found in two places. Solar electricity generation is supposedly better for the environment than current fossil fuel generation. But neither consumers of electricity nor individuals around the world pay for the environmental benefits that solar produces, so that solar manufacturers […]

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