Richard C. Porter

Averting expenditure and the cost of pollution

The paper considers the relationship between the willingness to pay for environmental quality and averting expenditures-that is, the costs of measures undertaken in efforts to counteract the consequences of pollution. The models used assume perfect mobility among locations with different levels of environmental quality. The major results are: (I) Averting expenditures are not in general a good measure of willingness to pay; (2) averting expenditures are not always even a lower bound on willingness to pay; (3) even when averting expenditures are a lower bound, the difference between the level of such expenditures and willingness to pay carmot be attributed to the unavertible “aesthetic” consequences of pollution. For almost every kind of environmental unpleasantness we face, there are averting expenditures we can make to reduce, and sometimes completely remove, the damage. For air pollution, house paint, air conditioners, soap; for water pollution, wells, bottled water, purifiers; for noise pollution, storm windows, thicker walls. Economists have long been aware that averting behavior is both possible and practiced, and they have often suggested that expenditures on such behavior can be used as a measure of the costs imposed on society by various forms of pollution. The literature on this subject is difficult to characterize, but to the extent that a consensus has been reached, it is that averting expenditures provide a lower bound estimate of the total costs imposed by pollution, and the divergence between averting expenditures and the total costs of pollution arises from the fact that some consequences of pollution (e.g., the simple unpleasantness of breathing dirty air) cannot be averted.2, 3 In this note we develop two simple models of the response of utility maximizing consumers to small changes in the level of pollution which they face. In the first model, we assume that environmental quality is desired solely because it reduces the need for averting expenditure; we show that: (1) the level of averting expenditure may be either a lower bound or an upper bound estimate of the consumer’s

Benoit Revisited: Defense Spending and Economic Growth in LDCs

In the early 1970s, Emile Benoit shocked development economists by presenting positive cross-country correlations between military expenditure rates and economic growth rates in less developed countries (LDCs). This article reviews the long debate that has followed. While the studies surveyed here differ widely in method and focus, the empirical results point to similar conclusions. First, efforts at re-estimating Benoits correlation coefficients for different samples and different time periods all fail to reproduce Benoits results. Second, while some studies uncover evidence of positive effects of military spending through human capital formation and technological “spin-off” effects, models that allow military spending to affect growth through multiple channels find that, while military spending may stimulate growth through some channels, it retards it through others, and the net effect is negative. The most important negative effect is that higher military spending reduces national saving rates, thereby reducing rates of capital accumulation. The existence of positive effects of military spending on economic growth, as conjectured by Benoit, still cannot be ruled out. However, the recent econometric evidence points to the conclusion that these positive effects, if they exist, are small relative to the negative effects, and that, overall, military spending has a weak but adverse impact on economic growth in developing countries.

The new approach to wilderness preservation through benefit-cost analysis

Over the last 15 years, economists of Resources for the Future led by John Krutilla have been developing a new approach to wilderness preservation. This paper offers a concise exposition of their approach and adds a few new steps. The basic ingredient of the new approach is a perception of declining net benefits of wilderness development and rising net benefits of wilderness preservation over time. These alter the entire shape of the benefit-cost analysis of potential development. The new steps involve reversibility, postponability, and recognition of multiple interest rates.

Efficiency-Inducing Taxation for a Monopolistically Supplied Depletable Resource

Author(s): Bergstrom, Ted; Cross, John; Porter, Dick | Abstract: We show that for a depletable resource, if the competitive time path of prices is known, and if the profit function is concave, then there is an easily described time path of taxes and/or subsidies that would induce a monopolist to follow an efficient time path of extraction.

A social benefit-cost analysis of mandatory deposits on beverage containers

Abstract This paper presents a social efficiency analysis of mandatory deposits on beverage containers. Five kinds of resource effects are identified, evaluated and added up: (1) litter (both pickup and “eyesore” costs); (2) solid waste collection; (3) container costs; (4) production and distribution costs; and (5) consumer convenience. It is shown that the desirability, on efficiency grounds alone, of mandatory deposits is not indisputable; it depends critically on ones evaluation of (1) the average value of the time it takes consumers to return empty containers and (2) the average value of the “eyesore” benefit of a dramatically reduced (i.e., by around three-fourths) volume of beverage container litter.

The promotion of the ≪ banking habit ≫ and economic development

Publisher Summary This chapter focuses on the effect of the promotion of the banking habit on economic development. In some countries, the profitability of new banks and of new branches to existing banks has been sufficient to cause the expansion; in most, however, the growth has been induced or encouraged by central bank policies and often spearheaded by government-owned banks. The chapter discusses the possible grounds upon which the case for a prior or leading expansion of the banking system can be based and to display some of the problems connected with each of these grounds. The conclusions that can be reached from such an analysis are fundamentally two: (1) a case can be made for pushing the growth of the banking system ahead of the real growth of the economy, however, it is far from indisputable; and (2) for a policy of rapid bank office expansion to be beneficial, other concomitant changes must be made in the structure and conduct of the financial system.

An Eclectic Model of Recent LDC Macroeconomic Policy Analyses

Summary. - After decades of neglect, there has been a growing concern in the 1970s with the theoretical and econometric analysis of short-run macroeconomic policy in LDCs. This paper attempts an eclectic synthesis of the recent work on this subject, developing a ‘standard LDC model’ of aggregate demand and aggregate supply that can be readily compared with the textbook models for advanced economies. Comparative static analyses of monetary policy, fiscal policy, devaluation and wages policy are conducted, and it is shown that the standard macropolicy prescriptions often produce non-standard results. Monetary restriction and devaluation are particularly suspect, as they are likely to produce both recession and price rises.

Environmental negotiation: Its potential and its economic efficiency

Negotiation is increasingly viewed as a desirable alternative to courtroom conflict between industrialists and environmentalists. The “court battle” is often costly, time-consuming, uncertain, and all-or-nothing; negotiation promises a cheaper, quicker, mutually acceptable outcome. This paper examines the conditions under which there is scope for a negotiated compromise; and it examines the conditions under which a negotiated compromise is economically efficient. Its principal result is a warning: there is no reason to expect that environmental negotiation conducted under threat of court battle will produce a socially desirable outcome.

Economic Sanctions: The Theory And The Evidence from Rhodesia

The term, ”economic sanctions“, usually means the application of restrictions by a group of countries on the external economic activities of one particular country for the purpose of reducing the economic welfare of the target country. Particular groups of nations have applied a wide variety of such sanctions for many reasons, but the imposition of economic sanctions ”at the universal level” (Doxey 1971, 46) has only been attempted twice, by the League of Nations against Italy in the 1930s and by the United Nations against Rhodesia during the past decade. In the Rhodesian case, the sanctions were added in stages following Rhodesia’s unilateral declaration of independence (UDI) in November 1965. In their final form, they were intended to stop completely the movement of products and factors of production into and out of Rhodesia (U.N. Security Council Resolution No. 253, May 29, 1968). The theory behind universal economic sanctions is simple: to impose hardship on the target country and thereby reduce its willingness to persist in antagonizing the world community. (”Thereby” is critical, although there is neither logical reason nor historical evidence that political or psychological collapse inevitably follows economic hardship; cf. Galtungl1967.) The precise way that sanctions cause hardship is open to many interpretations. In this paper, a “basic theory” of sanctions is offered -aggregate, static, and neo-classical in nature -and five alternative views of sanctions are examined (Section 1). Then, assessments of the effectiveness of the sanctions against Rhodesia are reviewed, and the

The Economics of Congestion: A Geometric Review

The purpose of this review is to consolidate the analytical basis and reduce the technical complexity of the growing literature on congestion. Money and time costs are kept distinct, and the basic positive and normative implications of congestion are derived geometrically. On the assumptions that the “size” of the facility is fixed and that an uncongested alternative exists, the implications are derived for one and two classes of identical users entering under various means: with free access, efficiently, with private ownership, and through clubs.