EC3383 Environmental Economics (E-learning) Questions a. What does Professor Kahn mean by the Unintended Consequences of economic activity?

Professor Kahn listed pollution from cars, industry, power plants and cigar smokers as the unintended consequences. These consequences are unintended as individual does not intentionally seek to pollute the air when they use cars or work in an industry. They are merely byproducts of their actions which are not intentional. For example, the goal of industries is to create jobs and allow the economy to grow, the by-product would then be the pollution, which is unintended. b. Kahn distinguishes between the quantity and quality effects of capitalism on the environment at different points along the economic development cycle. Discuss. Professor Kahn shows that capitalism has the quantity and quality effects. By quantity, he means that capitalism has resulted in more quantity of gasoline to be used. This is so as capitalism makes people richer and they are able to afford for cars which they used for transportation. If we solely look at the quantity of gasoline, we would conclude that from the quantity effect of capitalism, it is bad for the environment. By quality, he means that capitalism has resulted in higher quality of gasoline, such that the lead per gallon of gasoline used is lower. Such better quality translates to more efficient use of gasoline and reduces the negative effect of the emission of leaded gasoline. The change for a better quality gasoline happens because people anticipate the negative effect of lead emission and they come out with better (greener) techniques to protect the environment. Capitalism has given them the capacity to consume such high quality goods, which protect the environment and their health. Therefore, if we look at the quantity and quality effects of capitalism, we can conclude that despite the increasing quantity of gasoline used, we are still protecting the environment in the capitalist world as we improve the quality of gasoline used. c. Kahn states that nobody has the incentive to not pollute. Explain. Pollution is resulted as a by-product of individuals actions. Such individuals are able to avoid the full costs (including the social costs of pollution) of their actions therefore, if they are rational, they have no reason to internalise the extra cost of their actions. Thus, nobody has the incentive to change their behaviour to not pollute. As a result, government intervention is required to make people pay for the by-product (pollution) that they produced, then they would have the incentive to seek alternative to reduce the pollution they produce.

d. What was an unintended consequence of the US Clean Air Act? The unintended consequence happens when regulation of the US Clean Air Act changes the decision maker behaviour unintentionally. The intended consequence of the US Clean Air Act is to have a good quality ambient air, by enforcing stricter regulations on cities who do meet the clean air requirement. However, such stricter regulations would increase the cost for businesses operating in such cities; therefore, it motivates them to move to areas where the regulations are not severe, especially to the less populated area. This is a positive move as fewer people are exposed to the pollution, but it is a move not expected by the US Clean Air Act when they enforce stricter regulations, and it is an unintended consequence. e. Who do you think should own the property rights to the cliffs and local air surrounding La Jolla? I think people, who have the environment in mind, should own the property rights to the cliffs and local air surrounding La Jolla. This is so as they would be able to make an efficient decision without the cost of endangering the life and habitat of the seagulls in La Jolla.