Government and

1
Government and the Market
2
Environmental Policy

• The environment and production
• environmental failures of the market
• nature of an environmental policy
• Problems with policy intervention
• valuing the environment
• financial costs to other users
• revealed preference
• contingency valuation
• other problems
• spatial issues
• temporal issues
• irreversibility issues

3
Environmental Policy

• Environmental policy options
• market-based policy taxation and subsidies
• conflicts with revenue objectives
• redistributive effects
• problems with international trade
• effects on employment
• uses of green taxes in various countries

4
Types of environmental taxes and charges
5
Green tax revenues as a of GDP
6
Green tax revenues as a of GDP
7
Environmental Policy

• Environmental policy options (cont.)
• non-market-based policy command-and-control
  systems
• approaches to devising CAC systems
• technology-based standards
• ambient-based standards
• social-impact standards
• assessing CAC systems

8
Environmental Policy

• Environmental policy options (cont.)
• tradable permits
• how tradable permits work
• deciding on permitted levels of pollution
• 'grandfathering'
• their possible use internationally
• advantages
• problems
• Environmental policy in the UK and EU

9
Transport Policy

• Congestion problems and the impact on society and
  business

10
Passenger transport in Great Britain (percentage
of passenger kilometres by road)
11
Passenger transport in Great Britain (percentage
of passenger kilometres by road)
12
Passenger transport in Great Britain (percentage
of passenger kilometres by road)
13
Passenger transport in Great Britain (percentage
of passenger kilometres by road)
14
Passenger transport in Great Britain (percentage
of passenger kilometres by road)
15
Increase in car ownership
Cars per thousand population
Energy and Transport in Figures (EC, 2003)
Federal Highway Administration
http//www.fhwa.dot.gov/ohim/qfvehicles.htm
16
Increase in car ownership
Cars per thousand population
UK
Energy and Transport in Figures (EC, 2003)
Federal Highway Administration
http//www.fhwa.dot.gov/ohim/qfvehicles.htm
17
Increase in car ownership
USA
Cars per thousand population
UK
Energy and Transport in Figures (EC, 2003)
Federal Highway Administration
http//www.fhwa.dot.gov/ohim/qfvehicles.htm
18
Increase in car ownership
USA
Germany
W Germany
Cars per thousand population
UK
Energy and Transport in Figures (EC, 2003)
Federal Highway Administration
http//www.fhwa.dot.gov/ohim/qfvehicles.htm
19
Increase in car ownership
USA
Germany
W Germany
Belgium
Sweden
Cars per thousand population
UK
Energy and Transport in Figures (EC, 2003)
Federal Highway Administration
http//www.fhwa.dot.gov/ohim/qfvehicles.htm
20
Increase in car ownership
USA
Germany
W Germany
Belgium
Sweden
Cars per thousand population
UK
Spain
Energy and Transport in Figures (EC, 2003)
Federal Highway Administration
http//www.fhwa.dot.gov/ohim/qfvehicles.htm
21
Transport Policy

• The allocation of road space
• demand for road space
• a derived demand
• determinants of demand
• the price and income elasticities of demand
• supply of road space
• short run
• long run

22
Transport Policy

• Social optimum level of road usage
• marginal social benefit
• marginal social cost
• congestion costs time
• congestion costs monetary
• environmental costs
• socially efficient level of road usage

23
Actual and optimum road usage
Costs and benefits ()
MSB
O
Cars per minute
24
Actual and optimum road usage
MC (private)
Costs and benefits ()
a
MSB
O
Cars per minute
25
Actual and optimum road usage
MC (private)
Costs and benefits ()
e
a
MSB
O
Q1
Cars per minute
26
Actual and optimum road usage
MSC
MC (private)
Costs and benefits ()
b
e
a
MSB
O
Q1
Cars per minute
27
Actual and optimum road usage
MSC
MC (private)
Costs and benefits ()
d
b
e
a
MSB
O
Q1
Q2
Cars per minute
28
Transport Policy

• Social optimum level of road usage
• marginal social benefit
• marginal social cost
• congestion costs time
• congestion costs monetary
• environmental costs
• socially efficient level of road usage
• Identifying a socially optimum level of road
  building

29
Transport Policy

• Social optimum level of road usage
• marginal social benefit
• marginal social cost
• congestion costs time
• congestion costs monetary
• environmental costs
• socially efficient level of road usage
• Identifying a socially optimum level of road
  building
• use of costbenefit analysis

30
Transport Policy

• Policy 1 direct provision
• the road solution
• public transport
• Policy 2 regulation and legislation
• restricting car access
• bus and cycle lanes
• no entry to side streets
• pedestrian-only areas
• parking restrictions

31
Transport Policy

• Policy 3 changing market signals
• extending existing taxes
• road pricing
• variable tolls
• supplementary licences
• electronic road pricing
• subsidising alternative means of transport

32
Privatisation

• History of privatisation

33
Nationalisation and privatisation in the UK
34
Nationalisation and privatisation in the UK
35
Nationalisation and privatisation in the UK
36
Privatisation

• History of privatisation (cont.)
• forms of privatisation
• Arguments for privatisation
• market forces
• greater competition in the goods market
• greater competition for finance
• accountability to shareholders
• reduced government interference
• reducing the PSNCR
• increased share ownership

37
Privatisation

• Arguments against privatisation
• natural monopolies
• the public interest
• externalities
• fairness and social justice
• problems with the PSNCR
• problems in the valuation of shares

38
Regulating the Privatised Industries

• Identifying optimum price and output
• Regulation in practice
• the RPIX formula
• Advantages of UK regulation
• discretionary
• flexible
• incentives
• Disadvantages of UK regulation
• disincentives of changes to X
• excessive power of regulator?
• alternatively, regulatory capture
• complexity of regulation

39
Making Privatised Industries more Competitive

• Increasing competition in the privatised
  industries
• allowing competition where there is no natural
  monopoly
• limited extent of true natural monopoly
• allowing access to grids by competitors
• forbidding suppliers from being grid owners
• capping market share of established firms
• competitive franchising to make monopolies
  contestable