It seems to have the characteristics of a negative production externality:
The market for petroleum creates a negative effect (putting it very mildly) on third parties. This cost is not incorporated into the producer's supply curve and as a result is not reflected in the market price of petroleum products. As such the market price and quantity of petroleum can be considered inefficient. That is, the market outcome does not result in maximum gains to society.
So, does Pigou's solution to negative externalities apply here? If so, how would it be put into practice?
Subscribe to:
Post Comments (Atom)
7 comments:
I suppose if we assign a price value to the deepwater horizon, a tax fee could be applied. But when it is such a vast component of an ecosystem I don't know if this is possible. Maybe when it is the oceans in jeopardy, the most efficient solution would be policy changes in safety precautions (preventative measures).
Is it a negative externality? Well to me Yes isn't everything not anticipated especially that cost you big bucks. I think yes Pigou's solution to negative externalities applies here the oil industry should be and should have been taxed heavily. However we should not be made to pay the price in higher prices at the pump. Tax those who are making the major problem with this natural resource which in reality as in the case in the Gulf to me we are all entitled to it (the gas there). Everything is always so much deeper than the eye can see so it's easy for me to just sit here and say do this or that without really deeply looking at the subject but a way to tax the petroleum market i think would be the best alternative. In the end the government and outside organizations will be the major suppliers of funds to this disaster but with it hopefully soon behind us we should find a way to prevent future catastrophe.
I'm not really sure if the spill could be considered a negative externalilty. Yes, it is a problem imposed on third parties, however this problem doesn't occur with every consumption or production of the product.I believe that Pigou's solution wouldn't really be effective in this case. If the product was to be taxed, it would just be passed onto us, the consumers. We would suffer for their mistake. I think the best way to handle this issue is to increase their liability.
The spill is certainly a negative externality, and one where the true costs will be difficult to measure for years to come. There are talks of taxing oil in order to fund the clean up effort, what will surely be a trying ordeal in our current economic situation. Another caveat of a tax hike on oil would be the production of further externalties that would arise in terms of costs to 3rd parties. As oil prices increase, energy security and domestic production will suffer. Our government must carefully weigh the costs that are needed up front, create a methodology for funding the clean up, and implement payment terms for BP to foot the bill. They also must accept some responsibility for their role in leaving the method of containment so heavily flawed.
The spill is a negative externality. Higher taxes, stricter enforcement, tighter regulations could all help bring equilibrium to the inefficiency. But looking at this problem from a broader perspective, if another oil spill of such magnitude were to happen again (and it will happen), will we not be exactly where we are now? Pointing fingers, laying blame, shifting the burden? I don't think that taxes/regulation would help the nation realize the benefits. How would one place a value on everything that has been impacted by the spill? These accidents aren't frequent occurences, is it fair to apply taxes for such rare events? Would the consumer pay the price? What would be done with the tax money? Would it not be more beneficial to apply this money into eliminating the source of the problem? To lowering our dependence on foreign oil and offshore drilling? I read another article on this spill that said that the cost to clean up this mess could outfit every house in the US with solar panels that could heat everyone's water and provide a big share of their annual electricity, heating/cooling costs. If the taxes were applied to the oil industry and used wisely, the outcome will result in maximum gains to society.
I think the BP oil spill is certainly a negative externality, but I do not think a Piguovian tax would be the best way to remedy the issue. Consumers should not be held liable for the mistakes of BP. I think taxes would help to resolve the problem after the problem as already taken place. Instead, we need to look for remedies to halt the problem from occurring at all, like Thomas Cruz said prior to me, putting money towards alternative energy resources like solar panels. The fact is that events like this are rare and horrible indeed so we should instead be looking for ways to help prevent them in the future and also increase our dependence on cleaner energy resources.
I think the oil spill is a negative externality. I also think Pigou's solution applies here oil companies should be taxed for this. Oil companies should be taxed hard consistently not trickle down to the consumer(us) for their mistakes. The oil companies have enough monetary funds to have the best technology and safety available. They should have planned and prepared more effectively.
Post a Comment