1. State clearly thecharacteristics of greenhouse gases and climate change that are useful fordesigning the climate change mitigationpolicy from the perspectives ofvictims, polluters and regulators, respectively. Think economically.

  3. Explain the reasonsbehind this serious global and intergenerational problem, and then design anenvironmental policy that could solve the serious problem optimally based on the theory of externality. Either graphical or mathematicalmodels of economics are fine when needed.

ALicense to Steal

SanFrancisco Chronicle, Feb. 8, 1971

ByArthur Hoppe

The revolutionary natureof Mr. Nixon’s current Great American Revolution is even more revolutionarythan appeared at first glance.

Did you see his EconomicReport to Congress? Down in it he suggests that polluters be licensed in returnfor a fee.

“This charge would besufficiently high to encourage substantial control of Sulphur oxide emissions(or whatever),” says the report, “and the consequent reductions of damage tohealth and property should substantially exceed the control costs.”

Now this is certainly arevolutionary concept. But why limit it to pollution? Properly expanded, itcould lead to a new Federal Licensing Bureau, which might even take in enough moneyto balance the budget.

SCENE: The new FederalLicensing Bureau. A bored clerk is approached by a middle-aged applicant wholooks nervous.

Applicant: I’d like toapply for a license to emit Sulphur oxides. I have this small backyard smelterand....

Clerk: Okay. That’ll be$10,000.

Applicant: Did you say$10,000? That’s exorbitant!

Clerk: Remember, itshigh fees that reduce damage to health and property. Now if you want somethingcheap I can let you have a license good for tossing three beer cans and asandwich wrapper out your car window. That’s only ten bucks.

Applicant: Littering? Idon’t know, there doesn’t seem to be much profit in it.

Clerk: Ah, you’relooking for a profit? Confidentially, I think our best buy is a MuggingLicense. It entitles you to hit three old ladies over the head in the park ofyour choice and snatch their purses. Most guys come out ahead on this one.

Applicant (surprised):Hitting old ladies over the head? That sounds anti-social somehow.

Clerk (shrugging): It’sno different than a license to poison people’s lungs. And it‘s only $100.

Applicant (indignant):That’s highway robbery!

Clerk: Nope. HighwayRobbery is $200. But it’s a non-renewable, non-transferable, one-shot deal.

Applicant: I hate torisk that kind of money.

Clerk: Tell you what.Get a group of your friends together and take out a License to Riot. You canburn and loot five stores in the ghetto of your choice. The fee’s relativelylow because it’s part of our Urban Renewal Program.

Applicant (shaking hishead): It seems like these days people are getting away with murder.

Clerk: Not unless they got50,000 bucks, buddy. Remember, we got to keep the charges sufficiently high toencourage control of everyone’s criminal instincts.

Applicant (appalled):What kind of concept is that? It just means the rich can get away with crimeslike poisoning people’s lungs that the poor can’t afford to commit.

Clerk (yawning): So whatelse is new? Next.

1. Using the materialsin the section of Economic Analysis of Environmental Laws, especially Calabresiand Melamed (1972), Susan Rose-Ackerman (1985) and Weitzman (1974), can youexplain how the problem of regulating sulfur oxide is different from theproblems regulated by Hoppe‘s Federal Licensing Bureau?

2. After discussing thedistinctions between the activities, explain which (if any) of the activities couldbe regulated in the way suggested by the Council of Economic Advisors.

3. Assess Hoppe’s viewpoint with your own criteria clearly stated.

4. How is the problem ofregulating Sulphur dioxide different from the problems regulated by Hoppe’sFederal Licensing Bureau? When considering the distinctions among theactivities

Hoppe discusses,evaluate which (if any) of them ought to be licensed through monetary fees.

Weitzman, Martin, 1974,“Prices vs. Quantities,” the Review of Economic Studies 41(4): 477-491.

Susan Rose-Ackerman,1985, “Inalienability and the Theory of Property Rights,” Columbia Law Review85(5), 931-969.

Calabresi and Melamed,1972, “Property rules, liability Rules, and Inalienability,” Harvard Law Review85.