Environmental Economics — Revision Notes

⚡ 30-Second Revision

Externality: private decision omits effects on others.
Pigou 1920; Coase 1960.
Marginal damage ≠ average historical damage.
Tax sets price; cap sets covered quantity.
Rival extraction + difficult exclusion = common-pool problem.
Efficiency does not settle distribution.

2-Minute Revision

Environmental policy changes incentives and institutions so decisions account for wider consequences. Cost-effective abatement can differ from equal effort, but location effects matter. Taxes, permits and bargaining each have conditions. Evaluate environmental results and distribution separately, supported by measurement and enforcement.

5-Minute Revision

Use the two-source abatement costs to meet a two-tonne target at least stated cost. Explain why the result could change if emissions at one location caused much greater local harm. Then identify one distributional question that the cost calculation does not answer.

Vyyuha Quick Recall

Harm, margin, instrument, institution, incidence.