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Fenster schliessen

III.1 Market Failure

  1. non-rival -> under-provision of Public Goods
  2. non-exclusion -> Tragedy of Commons/Allmende: overuse
  3. Externalities
Fenster schliessen

III.2 Envionment as a public good

Problem No. 1: under-provision of public good

  • each player gets an equal share but cooperators have to additionally bear the costs of their contributions
  • free-ride problem
    -> leads to rational/dominating solution "no investments"
    -> leads to a deadlock in a state of mutual defection

Solution: public goods should not be allocated through the market merchanism, in orde to prevent a misallocation of ressources

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III.3.1 Environment as a common good

Problem No.2: Tragedy of the Commons

"When doing what's good for u isn't good for u." - Hardin 1968

  • Private optimum:
    • Average Revenue = Marginal Private Cost
    • 2€(48-2A production function) = 8 private costs => A=22
  • Social optimum:
    • Marginal Revenue = Marginal Private Cost
    • Profit: Pi= 2€*A*(48-2A)-8A
    • Pi'= 88-8A = 0 => A**=11
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III.3.2 Environment as a common good

Problem No.2: Tragedy of the Commons
-> 2 Solutions

  1. Regulating the use of the resource
  2. Creating and allocating property rights to the resource
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III.4 Conclusion

  • enviroment as public good: 1. non-rivalry and 2. non-excludability
    -> market failure: free-riding -> under-provision
  • enviroment as common good: -> overuse

Governmental intervention is required.


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I.1 The natural environment

  • closed environmental system -> we have neg. externalities
  • Y= F(K,L) -> Y=F(K,L,E)
  • rise of waste, which is discharged into the natural environment


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I.2 The Energy Chain

  1. Primary energy sources: occur in the nature, mostly not directly useful -> convesion into
  2. Secondary energy sources / End-energy: are transported to the "consumers"
  3. Useful-energy: heat, hot water, light, sound
  4. Energy services: warm rooms, hot water, lighting rooms
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I.3.1 Renewable vs. Non-Renewable


flow-resources vs. stock-resources

  • difference lies in whether the level of current use affects future availability
  • RE-Problems:
    • high costs
      • acceptance prob
      • installation and grid costs
    • volatility
      • storage
      • pump-storage-hydro-powerstation