Pure, Per Se and Natural Monopolies

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Table of Contents

Introduction
Policies to reduce the total amount of emissions
Monopoly market structure policy
Environmental policy
Conclusion
References

Introduction

Today’s economies need to evaluate and analyze effects influenced by decisions made in production, consumption or relatively all production and marketing activities. Economic agents interact in the production and marketing environments and a particular agent decision can have an influence to social-economic effects on the other (Externalities and policy, nd).

These influences and effects are regarded as the externalities. This means are effects beyond production or consumption of a project, firm, industry or individual spectrum (Mankiw, 2008). Externalities effects can be positive or negative. Negative externalities are actually painful to the immediate agent.

Governments through its institutions need to develop and implement policies to curb negative externalities effects that could otherwise cause malfunction of another economic agent.

As a policy maker concerned with correcting externalities relating to gases and particularly emitted by local power plants, various policies need to be developed and enforced. Policies to curb negative externalities due gases emission and consumption thus will lessen the overall effects to other agents still maintaining and maximizing the economic activity.

Policies to reduce the total amount of emissions

There are many costs related to the production and the consumption of gases. For example damage of the environment and risk of explosive gases emission and levels. Some of the policies to be developed include pure, per se and natural monopoly market structure policy and an environmental policy.

Monopoly market structure policy

Because the competitive economy of emission and the production of gases in presence of externalities are inefficient, fighting externalities through monopoly structure policy is legitimate. In this monopoly market structure policy, objectively target to shift production levels into a more social-economic level (Hirshleifer et al., 2005).

This will further reduce reduction. Market inefficiency in competitive economies regarding production of gases occurs due to production more that the market demand and thus increasing the negative externalities. The policy will reduce production of gases because the monopoly industry will produce enough to meet market demand.

Only one firm will be provided with the license to produce gases under pure, per se or natural monopoly bases. Government can franchise international company to engage in the production and benefit the monopoly powers. Conversely, there are various costs related to monopoly market structure.

Bearing in mind the industry produce enough for consumption, it still possesses powers to regulate prices thereby assuming the role of capitalistic market system (Hirshleifer et al., 2005). In fact, the industry is responsible in setting prices and not the demand supply mechanism in the market.

Environmental policy

The policy acts as externality control policy. Environment policy is usually also referred to as targeting policy (Riley, 2006). The policy involves deciding economic variables such as prices or outputs regulated in an attempt to control externalities.

Developed policy reduces production by giving quotas to the involved firms. Further as argued by Zilberman, (2002) production level is curtailed by applying taxes and subsidies to regulate or reduce production. Environment policy targets outputs reduction, inputs or externality generating activity to reduce overexploitation thereby reducing production levels.

Government measure and calculate the pollution produced per unit of outputs and set tax percentage on the output to achieve externality reduction tax. Conversely, there are various cost related to environmental policy. According to Riley, (2006) one cost is that the government institution may find it’s difficult in estimating the degree of pollution or externality thereby causing underestimation or over estimations.

In addition, increase in taxes and giving of subsidies may drive firms from the industry decreasing production levels lower than demand (Riley, 2006). This causes inefficiency in the market and under utilization of resources.

Conclusion

Externalities are usually connected to market failures. Usually, when externalities prevail and the policies are instituted to curb effects, prices do not reflect the true marginal costs. Ideally, many policies lead to erosion of competitive economy spirit leading to low production and consumption levels.

The benefits of producing and consuming gases do not only benefit the producer or consumer. The economic activity may bring fourth other negatives to the consumer. Thus immediate policies need to be formulated to protect other economic agents such as consumer and the social ecological systems.

Government should therefore reduce or internalize the main externalities through adoption of various policies. The above policies, market structure policies and environment policies would reduce externalities due to production and emission of gases.

References

“Externalities and policy” (nd). Negative externalities and policy. Web.

Hirshleifer, J, Glazer, A., & Hirshleifer, D.A, (2005). Theory and Applications: Decisions, Markets, and Information. Cambridge: Cambridge University Press, Mankiw, N. G. (2008). Principles of economics. New Jersey: Cengage Learning.

Riley, G. (September 2006). Externalities – Government Policy Options. Markets & Market Systems. Eton College Web.

Zilberman, D. F. (2002). Negative externalities and policy. University of California. Web.

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