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Exam (elaborations) ECS2606 - Environmental Economics (ECS2606) NOV 2021 MEMO
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Exam (elaborations) ECS2606 - Environmental Economics (ECS2606)
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ECS2606OCT/NOV 2021 EXAM MEMO
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, 1. “Efficiency implies cost-effectiveness, but cost-effectiveness does not
imply efficiency” Explain this statement [5]
In support of the statement above, a policy might be cost-effective even if it were
aimed at the wrong target. Suppose the objective is to clean up Johannesburg city,
regardless of what the benefits are in s case the policy is cost effective but has no
intended benefit to the end users hence it can be classified as inefficient. We
would still be interested in finding policies that did the job cost-effectively;
however, for a policy to be socially efficient, it must not only be cost-effective,
but also balance costs with benefits.
To be efficient, the harbour-cleaning project must balance marginal benefits with
marginal clean-up costs. The capability of a policy to achieve cost-effective
emission reductions (i.e., yield the maximum improvement for the resources spent)
is also important for another reason. If programs are not cost-effective, the
policymakers and administrators will be making decisions using an aggregate
abatement cost function that is higher than it needs to be, leading them to set less
restrictive targets in terms of desired amounts of emission reductions. Summarily
this means if a programme does not take into account cost effectiveness it has no
way of achieving efficiency.
2. If the net benefits of a particular environmental policy were judged to be
regressively distributed among different income groups, would this be
sufficient to oppose the policy?
Low income groups are exposed to higher environmental risks than high income
groups. If this is true, and if the distribution across income groups is not freely
chosen by those groups, then an issue of distributive equity arises. Regressive
distributions could be deliberately chosen: it may be that low income groups have
a lower demand for environmental quality than high income groups. Alternatively,
higher levels of pollution may be associated with associated benefits - e.g. lower
property prices - that compensate those groups for higher environmental risk.
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