Download Examples Market Imperfections

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Examples Market Imperfections
Neutral Carbon Tax I
• Greg Ip, A Carbon Tax that Won’t Hurt Growth, Wall
Street Journal, September 29, 2016
• Obama administration has been attempting to reduce
green-house gas emissions through regulation
• Emission targets for coal burning power plants, mandated fuel
efficiency
• Being challenged by a number of state governors and business
groups
• However likely that reducing emissions through
regulation comes at the expense of economic growth. Or
at least it is perceived to do so.
• Higher car prices, electricity bills, cost of replacing coal
power plants
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Energy Trilemma
• Classic energy trilemma
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Neutral Carbon Tax II
• Washington state has an initiative that overcomes the
growth/environment tradeoff
• Carbon tax that
• It is revenue neutral – Overall taxes same as before
• Embeds the cost of carbon emissions in price paid for energy
• Automatically encourages conservation
• Makes renewable energy more appealing without regulations
and subsidies that distort investment and undercut growth
• Revenue is used to cut other taxes, so does not reduce
incomes or undermine business competitiveness
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Neutral Carbon Tax III
• Ironically, much of the opposition coming from
environmental groups
• Want to use carbon taxes to
• Fund renewable energy and green technology
• Bolster incomes of workers and communities they feel are most
hurt by climate change
• Effect is to equate climate policy with bigger government
– hard to achieved broad based support
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Neutral Carbon Tax IV
• Operation of the tax
• Impose $15 tax per ton of carbon dioxide first year, $25 in
second year, thereafter 3.5% after inflation until it reaches $100
in current dollars
• Would add 25 cents to price of gasoline
• Average monthly electric bill up by $8
• All revenue returned
• To taxpayer via one percentage point cut is state sales tax
• Elimination of a business tax and
• A tax rebate of up to $1,500 a year to 460,000 low income
workers
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Neutral Carbon Tax V
• Similar to a 2008 carbon tax in British Colombia
• Tax has curbed average person’s fuel consumption by
7% and increased average car’s fuel efficiency by 4%
• British Colombia’s growth has not declined as a result of
the tax.
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Neutral Carbon Tax VI
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Antibiotics: Market Failure I
• Lawrence Fisher, Antibiotics: Poster Child for Market
Failure, Milken Institute Review August 15, 2016
• Problem: increase in antibiotic-resistant infectious
diseases
• Despite the need for new medicines in the area,
companies prefer to pursue R&D efforts for treating
chronic diseases
• Reason:
• When treatments for infectious diseases work, work rapidly
• Producers must cover R&D costs over relatively few doses
• Public outraged at paying thousands of dollars for a few pills or
injections
• Often infectious diseases most prevalent in populations that can
least afford them.
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Antibiotics: Market Failure II
• Result
• Large and growing gap between private returns to antibiotic
development and value to society
• UK study estimates 700,000 people dying each year from
infections resistant to widely available antibiotics
• Absent major intervention, by 2050 ten million will die each year
– more than currently die from cancer
• Estimates by 2050 will have drained $100 trillion from the global
economy or about $10,000 for every human alive today
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Antibiotics: Market Failure III
• Somehow problem has yet to translate into decisive
action
• Funding for antibiotic development actually declined 19%
in five years ending in 2013, compared with previous five
years.
• Problem companies and investors go where the money is
– drugs for widespread chronic conditions, cancer,
diabetes etc., not antibiotics
• “The market looks at this and says not only do I have a
straightforward path to approval with oncology drugs,
but I can charge whatever I want.”
• “People just not used to paying big dollars for
antibiotics”
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Antibiotics: Market Failure IV
• Market for pharmaceuticals rife with inefficiencies and
inconsistencies
• Some cases promotes over-use while others choke off
innovation even when societal return is high.
• Health care driven by uneasy mix of:
• Technocratic public policy
• Political lobbying and
• Private decision making
• Decisions often made with limited knowledge by parties
who won’t suffer much if they are wrong.
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Antibiotics: Market Failure V
• Related problem is that problem more chronic than acute.
• As with climate change, economic symptoms slow to manifest
and
• There are rarely immediate consequences for countries that fail
to take action
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