Market Failure in Environmental Pollution and the Attempts to Extend the Market

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Market Failure In Environmental Pollution and the Attempts to Extend the Market.

The idea of giving the environment a price has been a controversial issue as to whether introducing economics will inevitably save it, but with that idea considered, the environment has been increasingly difficult to place a value on. By using environmental valuation methods such as, contingent valuation (willingness to pay), opportunity costs and hedonic pricing, the measurement of environmental gains and losses can be represented in economic terms and by summing up these gains and losses an estimate pricing of the environment can be placed (Beder 1997).

The environment is constantly subjected to market failure, where a market is incomplete or is failing to do what it aims to (failure to protect the environment) (Kolstad 2000), and appropriate measures are continuously being devised to extend the market and prevent the further degradation of environmental and natural resource problems. An environmental market failure well represented in attempts to be fixed is the emissions of pollution into the atmosphere contributing to the enhanced green house effect (Tietenberg & Lewis 2009). This is due to the demand of pollution by the environment being negative, because clean air is much preferred than heavily polluted air, yet there is a huge supply of pollution into the market from industry, thus causing market failure (Brehmer et al. 2007). In the aim to reduce current levels of pollution, there has been the introduction of efforts such as command-and-control (CAC) procedures and market based instruments (MBI’s) effect (Tietenberg & Lewis 2009). The benefits and fall downs of each and how they intervene in a failed market for pollution will be discussed and to determine if they can completely extend the market and solve the issue.

Command and control
‘CAC’ methods are based and prioritized on developing emissions standards (Tietenberg & Lewis 2009). These methods are...
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