KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 1

Economic Policy and Market Regulation

Part 3

Dr. Stefan KoothsBiTS Berlin

(winter term 2013/2014)www.kooths.de/bits-ep

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 2

Outline

1. Introduction and Overview2. Market Mechanisms and Government

Interventions3. Externalities and Public Goods

Technological externalities Public goods and common resources

4. Competition Policy and Regulation5. Ordoliberalism and the Social Market Economy6. Summary: The Key Lessons Learnt

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 3

Technological vs. pecuniary externalities

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 4

Positive externalities: Private and social utility

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 5

Negative externalities: Private and social cost

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 6

Policy instruments: Incentive-based vs. command-and-control

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 7

Criteria: Static efficiency, dynamic efficiency, and effectiveness

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 8

Moral suasion

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 9

Nationalization

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 10

Public orders

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 11

Pigou-taxes/subsidies

Arthur Cecil Pigou(1877—1959)

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 12

Cap-and-trade (example: pollution permits)

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 13

Bargaining: The Coase theorem

Ronald Coase(1910—2013)

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 14

Outline

1. Introduction and Overview2. Market Mechanisms and Government

Interventions3. Externalities and Public Goods

Technological externalities Public goods and common resources

4. Competition Policy and Regulation5. Ordoliberalism and the Social Market Economy6. Summary: The Key Lessons Learnt

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 15

Classification of goods: Excludability and rivalry

Classification matrixRivalry?

yes no

Excludability?yes Private good Club good

no Quasi-public good Public good

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 16

Private vs. collective goods: Aggregating individual demand

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 17

Non-excludability: The free-rider problem

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 18

Managing collective goods: Quantities, prices, and willingness to pay

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 19

Providing public goods: Cost-benefit analysis

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 20

The Tragedy of the Commons

KOOTHS | BiTS: Economic Policy and Market Regulation (winter term 2013/2014), Part 3 21

Common resources and property rights