Carbon prices head higher as emissions targets start to bite
There was some important information this week from over 10,000 power generators, steel, cement and aluminum manufacturers. The effectiveness of carbon trading in creating the right incentives for power users to cut emissions depends on there being a scarcity of carbon permits reflected in a price high enough (and sufficiently predictable in the medium term) for investment in improved fuel efficiency to be commercially viable. A couple of years ago the market price of carbon collapsed when it became clear that the EU had been overly generous in handing out free gifts of carbon permits. The criticisms were valid and the long term future of the carbon trading scheme was called into question.
But the signs for the second phase of this innovative market mechanism look more promising.
read more...»Tim Harford takes a dig at green taxes
VAT on gas and electricity too low? Excise duty on petrol and diesel too high? Yes says Tim Harford in his Undercover Economist slot this week. “Green taxes have been fussy and poorly-targeted, by turns too stringent and too lax ... This government – like most governments – likes to use the tax system as a way of expressing its moral views: hooray for pensioners, down with Jeremy Clarkson. Cheap politics for them, less so for the taxpayer.”
The rest of the article is here
The Rock and his Millions
Geoff’s entry today here prompted me to write something topical for once, so I’m going to follow up on this enlightening review. Despite everyone clamouring for change (from more staffing to a rehaul of the entire system), nobody actually knows what actual reforms are going to be implemented, aside from how we’re promised that things will be “better”. Somehow it reminds me of a certain someone’s campaign, but let’s not get into that. Instead, I’m going to discuss the theoretical side of how this discovery may affect the future.
read more...»Government failure and the Rock
Well here is one for the file on classic examples of regulatory (aka government) failure in the market. The Financial Services Authority (FSA) has admitted that it gave too few resources over to monitoring the problems building up at Northern Rock - covered in this BBC article and also this piece in the Financial Times. The FSA seems to have been assuming that the Bank of England stood ready to bale out the Northern Rock and there were failings in the oversight of the Rock by supervisory teams sent to look at the Rock’s flawed business model. None of this will be any comfort to the shareholders and also to the thousands of Rock employees who will lose their job. Robert Peston is brilliant on this issue - here is his latest blog which lays bare the blundering at the FSA and the shocking incompetence of their senior management.
Demand for recycled steel
One of the beneficial side effects of the boom in commodity prices is that the economcis of recycling materials has changed. This BBC video clip looks at the booming market for recycled steel, 95% of an old war ship can be used again as it is ripped apart in a shipyard in Belgium.
On the other hand, the soaring price of copper and other metals has seen a rise in theft - this article from the Guardian last week says that up to two dozen people have died in crime related to the stealing of copper in the USA over the last two years: “With copper prices rising from 80 cents a pound five years ago to $4 a pound, the wiring and pipework to be found in transport, buildings and electrical infrastructure is suddenly attractive booty for thieves.” Schools, hospitals and churches have not been immune to the rise of copper stealing - it is all a question of incentives!
Interrelated markets and climate change
An article in The Times recently explored the economic implications of reducing demand for oil and energy in the West.
read more...»Dioxin contamination and illegal dumping of waste
The Independent’s front page this morning offers a classic tale of externalities. For years residents of Campania have been found to be less healthy than residents in the rest of Italy. Mortality rates, particularly from some forms of cancer, are higher in the areas around Naples where the rubbish crisis is at its most severe. Now allegations are surfacing that the illegal dumping of waste in an area where waste management is under the control of the Mafia has caused excessive levels of dioxins to be found in Buffalo milk, one of the prime ingredients of mozzarella cheese beloved of pizza lovers around the world.
“The topping on a billion pizzas, the magic ingredient in a million salads, is at the centre of a major food scare involving pollution, corruption, the Mafia and southern Italy’s remarkable crisis in waste management.” In a separate piece, the Indy reports that “A recent report by Italy’s small business group estimated that the Mafia is the biggest business in Italy, with organised crime netting Mob bosses the equivalent of more than £63bn a year, or 7 per cent of the country’s gross domestic product.”
BBC news: Toxin scare hits mozzarella sales
New York Times: Italy’s Mozzarella Makers Fight Dioxin Scare
Learning Lessons from: Dan Ariely
On Monday Dan Ariely gave an engaging lecture at the LSE on behavioural decision theory. Here was a branch of economics which borrowed aspects of neural psychology in order to investigate the reasons for human behaviour. Geoff already gave a detailed summary of the event here but I’d like to highlight and discuss some of the most interesting points Dan put forward. This entry might be more of an intermittent running commentary, and it would be extremely helpful if you listen to the podcast first, here.
read more...»Dividing the spoils in the milk industry
“Supermarkets use their gigantic size and bargaining power to capture almost all of the profit from the milk industry, leaving farmers with a tiny proportion of the total: equal to only half a pence for each litre of milk. That is the central finding of new research by Drs Howard Smith and John Thanassoulis presented at the Royal Economic Society’s 2008 annual conference. Farmers are in the weakest position, only able to secure 0.5 pence per litre, or about 3% of the total supply chain profits from liquid milk.”
Many of us use the supermarkets as an example of monopsony power in markets - using their bargaining power to drive hard deals with their suppliers. New research presented at the March 2008 RES Conference provides evidence on how profits from each litre of milk sold are divided up among market participants. It is not good news for milk farmers struggling to make an economic profit and justify staying in the industry.
read more...»What shall we do with the drunken nation? Volumen Dos
[This is the concluding half of my two-parter on combating alcohol abuse in Britain. The first half, focusing on the price policies the government can use can be read here.]
read more...»Depreciating lemons and peaches
The prices of used cars are falling faster than ever before.
read more...»“10 Grand” Design
If, like me, you dream of living in a modern home of the like seen in Grand Designs, this link from the BBC gives you hope - and perhaps offers a solution to the UK housing shortage.
read more...»Jackoby on Government Failure
How government makes things worse - Jeff Jacoby writes about the law of unintended consequences and government failure in today’s Boston Globe. There are spooky parallels with failed government policies here at home.
“WHAT DO ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.”
Read the remainder of the article here
Information failure on plastic bags?
The Times yesterday carried an article on a dispute among scientists about the true scale of the risks facing marine life from the deluge of plastic bags find their way into our seas and oceans. The article came at the end of a week when Marks and Spencer introduced a 5p per bag charge for food sales and Gordon Brown threatened government action unless the supermarkets take fresh steps to lower the volume of plastic bags used annually.
read more...»The Economics of Food Waste
There was a terrific programme on the economics of food waste on BBC Radio 4’s Food Programme this lunchtime. “The Food Programme investigates the food waste created by restaurants, food manufacturers, supermarkets and airline caterers.” Details of the programme are available here.
If we believe them, the scale of the mountain of uneaten food is vast and a stunning waste of scarce economic resources. Food waste comes from household bins, supermarkets, pubs, restaurants, airline caterers and other commercial food producers. From printing errors on packaging to errors on sell by dates, from food that is delayed in transit for just a few days to the dumping of wasted products from supermarkets that have failed to meet their sales targets, we are serial disposers of millions of tonnes of food waste. How can we move towards a more sustainable future for our food industry? The methane gas from food waste accumulating in landfill sites is a significant and growing contributor to global warming. The programme offers rays of hope - there is money to be made from kitchen scraps that can be collected and converted into electricity and compost - but the scale of this is minute at present. A cultural change is needed - not least a change of behaviour by consumers and a move away from knee-jerk marketing from food retailers which take them away from longer term planning about how much food they need.
Growing food waste mountain blamed on get-one-free offers
Merit and De_Merit Goods
We had an interesting brainstorming session in our AS micro today! We wanted to discuss which examples of consumption and/or production deserved the sobriquet of merit or de-merit goods. The point was made very early on that what each of us regards as socially beneficial or socially damaging depends very much on our own value judgements. And the other aspect of merit and de-merit that we emphasised was the ever-present issue of information failure. Just today there was an article in the Telegraph about how “taking aspirin can cut breast cancer risk by 20%” and at the same time, we know the risks of addiction to painkillers and other treatments.
This was the list of merit and de-merit goods that my two groups came up with - fuelled it has to be said by a plentiful supply of mini doughnuts and chocolate cookies from Sainsburys! I used this as an example. We wanted to test doughnuts and consider their social benefits (!) but the plastic packaging and waste we created also has a social cost. I have linked to some relevant BBC news stories as well.
read more...»Malthus’ Revenge?
Food security is a growing issue to add to climate change, globalisation and meltdown in the financial markets as a cause for concern. Professor John Beddington, chief science adviser to the government, has warned that as the world’s population increases and grows wealthier, demand for food could outstrip supply ... are we returning to Malthusian misery?
read more...»Free riding at breakfast
The lobby of the Novotel at Euston Square is a most inviting place for someone wanting to enjoy a relaxing coffee and a read of the morning papers. I got there just after 7am on Friday ahead of the ICT Conference at the British Library and ordered a coffee before checking through some emails. Little more than twenty minutes later, the team from Tutor2u were assembling for a healthy breakfast and I joined the queue with them fully expecting to be asked for my room number or perhaps checking in for a paid breakfast. Nothing happened .... I unwittingly became a free rider and happily raided the buffet for some fresh fruit, cold meats and an expresso.
Free riders are spongers who enjoy the fruit without paying a price. We were discussing this in our AS micro the other day. From using someone else’s Wi-Fi network to enjoying the environmental spillovers from another country reducing their CO2 emissions. The free-rider problem can be a cause of market failure for if too many people can get away without paying, the market may struggle to make a profit from the goods and services it supplies.
read more...»Mobile Shopping
mShopper is a new retail tool which allows consumers to make purchases via mobile phone.
Internet sales (’clicks’) are already challenging traditional retail (’bricks’) markets and the economics behind these changes is fascinating.
read more...»Public goods essays
Thanks for the ideas for essays on public goods. I settled on giving the students a choice of one from three…
read more...»A Market for Human Organs
One of my students James Snowden writes about whether there should be a legal market in trade in human organs
read more...»What shall we do with the drunken nation?
Over the last week I’ve noticed quite a few alcohol-related articles on tutor2u (here and here). To extend the tradition, here’s my take on the subject:
It’s becoming quite clear that alcohol abuse is fast becoming a problem for Britain. Every day we see tabloids headlines screaming “A Nation of Alcoholics”, etc. Okay, perhaps the issue isn’t that bad but we definitely have to do something to curb this binge drinking “epidemic”. Being the pragmatist that I am, I’d like to examine a spectrum of policies the government have at their disposal and their likely consequences.
read more...»Reconsidering merit goods
What is a merit good? There has been an interesting exchange of views on the TES forum this week prompted by this post
“A merit good usually, but not always, yields postive externalities when consumed”
When would positive externalities NOT be yielded?
read more...»A world without insurance
What would life be like if there was no insurance? This was the title of a short essay I set a little while ago. Here is one of the answers written by a 17 year old A level student - nicely judged and getting to the heart of some important issues.
read more...»24 hour drinking - a case of government failure?
Last week one of our bloggers carried a story about taxation and the demand for alcohol. And today the Independent reports that a Home Office study is likely to report that the liberalising of the licencing laws in 2003 has not (as yet) led to a reduction in alcolhol related crime or a change in our drinking patterns towards a European-style culture. The Indy report claims that ‘Serious violent crime has been displaced, with a steep rise in offences committed between 3am and 6am and, despite the millions spent on police crackdowns on drunken disorder, alcohol-fuelled crime hot spots have become worse.’
You can barely walk into a supermarket these days without facing a barrage of deep discounts on cans of lager, boxes of Chilian wine and bulky dispensers of Heineken. It is cheaper to buy a can of lager than a bottle of mineral water. Online shoppers receive regular emails alerting them to the latest 3 for 2 offers on cheap alcohol. The supermarkets have a social responsibility but one retailer on their own is unlikely to make the first move for fear of putting itself at a competitive disadvantage. Is it time for a law banning the deep discounting of alcohol products.
BBC news audio-video on Tesco and alcohol prices
Would Increased Taxes on Alcohol Curb Binge Drinking?
There are a number of negative externalities caused by excessive drinking. There are 1.2 million violent incidents each year attributable to alcohol misuse, alcohol related illnesses cost the NHS £1.7 billion per year, and £6.4 billion is lost to business in terms of lost productivity. An article in today’s Telegraph argues that a small increase in the tax on alcohol could save thousands of lives a year.
Click on this link to read the article: Taxes on Alcohol Should be Increasd to Curb Excessive Drinking.
But, is increasing the price of alcohol the best way to curb binge drinking, and internalise the negative externalities? Or should there, as is the case with cigarettes, be labels on the drinks warning of the dangers? Should alcohol advertising be banned? Should bars be prevented from offering ‘happy hour’ promotions? Has extended bar opening hours had any impact? Should more be taught in school on the dangers of excessive drinking?
The Home Secretary, Jacqui Smith is considering giving police power to confiscate alcohol from anyone under the age of 18 carrying it in public:
Should the Police Have Powers to Confiscate Alcohol?
Diginomics and an Essay Quandary
This week we have been looking at the difference between private and public goods as part of our exploration of market failure. The standard examples of public goods tend to crop up fairly regularly - national defence systems, the legal system, lighthouse protection, flood defence infrastructure etc. In some industries the distinction between private and public goods is becoming blurred and the rapid expansion of the digital economy has provided an interesting window for discussion on what constitutes a public good in our digital age. I cannot quite decide what essay title to set this week and I am hoping for some inspiration from Tutor2u bloggers!
read more...»Congested skies
The front page of my Times this morning has a particularly striking picture of an aircraft seemingly about to land on the roof of some unsuspecting person’s three-bedroom semi detached. And contained with the article is a classic example of externalities and costs and benefits. The story is about a proposed reorganisation of holding stacks for aircraft using many of Britain’s busiest airports.
read more...»Social stigma and economic behaviour
Are drivers over the limit acting rationally when they get into their vehicles and pull out into the traffic? Surely they understand the possible consequences for themselves including the risk of conviction, higher insurance premiums, fines, probable loss of employment and the impact on their families?
It might be rational for some drivers to decide that they can drive their vehicle under the influence of alcohol providing they factor into the equation the expected private costs and benefits of doing so. Becker’s (1968) expected utility model of criminal behavior might be usefully applied to decisions that drivers take when they know they are over the legal limit for being in charge of a vehicle.
But what might be a reasoned decision for the driver can have terrible consequences for society as a whole as many people know to their cost. Is there a role for the government to penalise through exposing drunk drivers to social disapproval? In the state of Ohio they have tried just this approach.
read more...»Shopping Makes You Fat (and it’s bad for the planet too)
The SDC blames the food chain for 20% of greenhouse gas emissions in the UK and for contributing to unhealthy lifestyles.
Professor Tim Lang, the report’s main author, told BBC News: “When we go shopping, I don’t think we really recognise the enormous impact our food is having on the environment. It… has an impact on our health, the energy use, how we get there - everything that matters is actually happening beyond our control, but government’s got to get grip of that.”
read more...»
