1. Why is pollution causing rising public concern?

a. The rate of discharge of pollution has increased with rate of production of goods and real income (in 1991 about 4.5 times their 1961 level.) Modern technology has both helped and hindered pollution (radiation and pesticides).

b. Rising expectations brought about by rising leisure time industries (boating, camping, etc.) and greater concern for health (with aging population).

c. Rapid urbanization led to concentrated waste that exceeds the natural capacity of the environment to assimilate (especially air and water quality).

d. Global view of pollution has been enhanced by scientific evidence (ozone depletion) and market externality effects.

2. What is pollution?

a. The impairment of the environment by the return or discharge of material into it.

b. But what about aesthetics and noise, etc. affecting the quality of life?

c. Economists describe pollution in terms of negative external costs to society.

d. Air and water are fugitive resources whose movements are to predict, and hence result in significant transactions costs in private agreements.

3. What are alternative government environmental policies?

a. Collection and disposal is the most straightforward antipollution policy.

b. Regulation and enforcement (often through permits) by the Environmental Protection Agency empowered to control air, water, and solid-waste discharges, although the latter is largely the responsibility of states delegated to local governments.

c. Economist favor decentralized and market-oriented decision making based upon economic criteria rather than government negotiations.

d. Subsidies for discharge abatement are opposed on both efficiency and equity grounds by economists.

e. Effluent fees are favored by economists as a replacement for permits. West Germany and France have used them effectively. Fees based upon pollution discharge increase incentives to lower pollution and result in more efficient decisions based upon internalized external costs.

f. Marketable pollution rights is a variant of effluent fees that have the advantage of determining in advance the amount of allowed pollution. It is also less likely to drive firms out of business if all external costs are not internalized. The dispute is over who has owns the property right to environmental quality. In many cases these rights are purchased by firms who contributed to pollution in the past.

g. Material reuse can substantially lower the cost of solid-waste disposal.

1. High Density increases the number of victims adding to the social cost of pollution and reduces the ability of the natural ecology to absorb external costs. Hence, damage rises more than proportional to the volume of discharge.

2. Amenities, Rents, Wages, and Location are affected by pollution. They affect what an effluent fee (or direct regulation) is worth.

a. Amenities affect neighborhood values and result in spatial variation in rents similar to school quality, access to the CBD, and other differentiating factors. With interdependencies, however, the bidding for clean air locations is not fully reflected in relative property values. In any auction, the winning bid is the maximum price the second-highest bidder is willing to pay which is less than what the highest bidder is willing to pay.

b. Interurban amenity variations are greater than within urban areas. The land rent gradient will shift up in the clean city (other things equal), but the increase may be attributed to differences in population densities. The clean air city will also expand the edge of the city outward to accommodate more population.

c. Workers insist on wage premiums to live in large urban areas to compensate for higher commuting costs or higher rents. Cleaner air may offset the need for wage compensation, and more pollution requires greater compensation.

d. Firm location is increasingly footloose with greater values placed upon amenities, including clean air. But greater demand will increase wage rates and land costs which offset amenity advantages for new firm location.