(individual) Assume that the graph in Figure 13-1 shows how much much it costs per year per car to reduce undesirable automobile emissions by various percentages through mandatory exhaust-control devices.
- Why does the curve rise slowly at first and increase more rapidly as emission levels decline? Is this a peculiar characteristic of automobile exhaust-control systems, or is it a more general relationship?
Because the cost to reduce emissions increases exponentially. Generally the cost to reduce anything will following a similar curve, though the exact rate is different every time. For instance, the cost to reduce a software development schedule by 50% is going to double. But to reduce it to nothing will cost you infinite dollars.
- Does this curve tell us how much emissions ought to be reduced? Does it provide any guidance at all to those who make public policy in this area?
It does not say how much they ought to be reduced, though it does give some guidance that the cost will eventually outstrip the benefits.
- If you think of this curve as the marginal cost of supplying cleaner air, what kind of data would you want in order to construct the demand for cleaner air? What would be the significance of the intersection between these two curves?
The same data for any demand curve. How much a person would be willing to pay for a reduction in emissions? Where it intersects is where you know that you have support for paying for reduction. And where you are likely to see the actual reduction (as well as the actual money paid for the reduction).
- Suppose you want to find out how much people in your area value cleaner air. So you commission a survey in which people are asked how much they would be willing to pay in order to obtain various levels of reduction in the amount of noxious automobile emissions in their community. Can you generally count on them to tell the truth? Remember that they won't be held to their valuation—that is, they won't actually be required to pay what they say they would be willing to pay. What are the major sources of bias in such a survey procedure?
It doesn't ask them to economize their scarce resource, money. Asking someone how much they'd pay for a concert doesn't take into account the fact that they can only afford one concert per year. They don't have to choose. And without choosing, it's only somewhat of a preference. It will over-estimate the amount people will be willing to pay.
- Suppose that your survey is done for the government and that the people who you ask know they will actually be required to pay an annual tax equal to the amount they say they are willing to pay for whatever level of reductions is finally decided on and enforced. What sort of bias will this introduce into your community demand for cleaner air?
It's likely to under-estimate in this case. Even though they may be willing to pay X for Y, they may not be willing to ay X times 2 for Y times 2. So rather than get suckered by everyone else being willing to pay for more reduction than they are willing, they will underbid by a percentage they think everyone else will bid over their preferred amount. Since they think everyone else really wants a lot of clean air (see results of previous survey), they'll underbid by a lot, expecting it to be raised up when others want more.
No cost is too great to pay to reduce the smog level.Do you think that people who make such statements expect to be among those who actually pay the costs of reducing the smog level?
I'm sure they do. I expect they don't think the cost is really infinite. My guess is they really think the government has a secret technology that eats all smog and that the auto industry is secretly suppressing it. So the application of $52,178 for the proper industrial espionage will cure smog. So they think the cost to them really will be small.