Economic System

1
Economic System

• Political and legal system for resource
  allocation, protection, and dispute resolution

2
Types of Economic Systems

• Free Market/Laissez-faire philosophy
• No govt intervention
• Supply/demand set price price allocates
• No coercion or deceit
• Regulated/Mixed System
• Govt intervention to prevent evils
• Level playing field
• Controlled/Command System
• Govt dictates prices, supplies and trade

3
Assumptions of Mixed Market

• Individuals are the best judges of social wants
  and needs
• Competition--no monopolies/adequate numbers of
  buyers and sellers
• All parties have full information--full
  disclosure
• All goods privately owned
• Price allocation mechanism based on supply and
  demand
• Price reflects all costs of production and users
  pay true costsPOLLUTION COSTS
• All goods have market values

4
Three Problems

• Public goods--Oceans, gulf coast, beaches, air,
  Edwards Aquifer
• Externalities--costs/benefits not reflected in
  price of product
• Non-market goods--i.e., White-tailed deer
  hunting, wilderness areas, clean air, bird
  watching, wetlands, protection of endangered
  species.

5
Non-Market Goods How to develop values

• Indirect Techniques
• Measures value by behavior of people to
  environmental changes-Revealed preferences
• Hedonic Pricing--willingness to pay reductions in
  offending conditions
• Travel Costs--recreational activities
• Direct Techniques
• Contingent Valuation--asking peoples willingness
  to pay for a change in services

6
Internalizing externalities--Pros Cons

• Altruism--basic wish to do good for all
• Moral/Educational Persuasions--i.e., Don't mess
  with Texas give a hoot, don't pollute only you
  can prevent forest fires replant
• Prohibition
• Direct Regulation Deposit bills
• Tax Incentives Payments
• Pollution Rights