Economic Policy Fundamentals - Weichenrieder (Past Paper PDF)

Economic Policy MIEEP Semster 1 Fundamentals of Ecomomic Policy – Weichenrieder How should we evaluate Government Policy?............................................................ 2 Pareto:.............

Economic Policy MIEEP Semster 1 Fundamentals of Ecomomic Policy – Weichenrieder How should we evaluate Government Policy?............................................................ 2 Pareto:................................................................................................................. 2 Kaldor-Hicks Compensation Criterion (KHCC):....................................................... 2 Social Welfare Functions (SWF):............................................................................ 4 Measurement of individual Utility:.......................................................................... 5 Comparability of individual Utility:......................................................................... 5 Different SWF‘s:................................................................................................... 6 Expected Utility and Veil of Ignorance:.................................................................... 8 Justice and the Idea of a Social Contract:..............................................................10 The (Im)possibility of a social ordering:..................................................................10 Political Decision Making:.......................................................................................12 Elections/Question of the required mojority to win.................................................12 (Downs) paradox of Voting (1957):.........................................................................12 Condorecet Paradox:...........................................................................................12 Probabilistic Voting:.............................................................................................14 Majority Vote and Gerrymandering:.......................................................................15 Public Goods..........................................................................................................16 Classification of Goods........................................................................................16 Public Goods Provision........................................................................................17 Private provision of Public Goods:.........................................................................18 Externatilites:.........................................................................................................20 The tragedy of the commons:...............................................................................20 Internalization Strategies:.....................................................................................21 Economic Policy MIEEP Semster 1 How should we evaluate Government Policy? Positive economics vs normative economics - Explanation - advise - Description - No judgement -> criteria for evaluation needed But: politicians might not follow recommendation of Economists Pareto: Pareto criterion: Move from allocation a to b is a social improvement (pareto improvement) if an only if at least one individual is better of an no one is worse of Pareto optimum/efficient: situation from which no pareto improvement is possible. But: Insufficient basis for economic policy -> hard to implement in reality o No complete ordering possible = pareto optima can not be ranked o No trading between gains and losses o Hardly any policy without losers ▪ e.g. dictator can not be overthrown as he would lose from it Kaldor-Hicks Compensation Criterion (KHCC): Definition: Move from allocation a to b is a social improvement if the winners could (theoretically) compensate the losers. ➔ Gains > losses (similar to costs benefit analysis) Justification: 1. concentration on efficiency (cake gets bigger) 2. with many interventions, its likely that everybody = winner - s.t. Timbergen rule: optimal policy needs as many instruments as there are goals Economic Policy MIEEP Semster 1 Illustration Timbergen Rule: Illustration KHCC: z = starting point ➔ policy shifts utility possibility frontier/curve z-> k = social improvement by KHCC, pareto improvement z-> h = social improv. by KHCC, no pareto improvement Critique of KHCC by Scitovsy: - KHCC could imply implementation and abolition of a policy - = blindness - One would have to check if abolition is recommended before implementation - Illustration: N1 -> N2 = policy shift a -> b = social improvement, because c can be reached c - > a = social improvement, because d can be reached Economic Policy MIEEP Semster 1 Illustration in a box: z -> q = social improvement, because A could compensate B, by giving B qs units of y q -> z = social improvement, because B could compensate A, by giving A mz units of y Social Welfare Functions (SWF): Idea by Bergson, Samuelson - Aggregation of individual Utilities (by attributing an index of social disirability) o individualistic = no social objective beyond the individual preferences - creates ranking of socially desirable allocations -> maximization of SFW picks a/many pareto optimal allocations - usually with: (Pareto improvement) Requirements: - Measurement of individual utility - Comparability of individual utility - Consistency: Illustration: - a, b, c = pareto optima Economic Policy MIEEP Semster 1 - max W picks b = optimal allocation Measurement of individual Utility: 1. ordinal utility a. numbers indicate social ranking/ordering (but nothing more) i. differences and scale have no significance b. only monotone transformation allowed -> ranking is observed i. e.g. 4x, x2, lnx -> transUi= Ui°= 4 Ui = bUi c. application: microeconomics, decision ranking 2. cardinal utility a. only linear transformation allowed i. transUi= Ui° = ai + biUi ; bi > 0 ii. in this case no comparability possible Comparability of individual Utility: 1. no comparability 2. ordinal level comparability a. possible to say weather A compared to B is better/worse/equal (level, not changes) 3. cardinal unit comparability a. possible to talk about changes in utility (not level) b. Ui° = ai + bUi -> same b for all i -> talking about change possible 4. cardinal full comparability a. possible to talk about changes in utility and utility levels b. Ui° = a + bUi -> same a, b for all i ➔ Limitations on permissible transformation/on comparability leads to increase in consistent SWF‘s Economic Policy MIEEP Semster 1 ➔ For SWF‘s: If utility function of one individual is transformed, all others have to be transformed in the same way. Otherwise, there might be a reversal in ordering. Different SWF‘s: all a berson samuelson utility function 1. Rawlsian SWF: - social welfare = welfare of the least of member of society - Ordinal level comparability required (level) - Lexigografic ordering (focus on the least of person): o Wenn UA < UB, ist ein wachsender Nutzen von UB kein social/pareto improvement nach Rawls. 2. Additive SWF: - for αi = 1 -> Utilitarian SWF - cardinal unit comparability required (changes, not level) - idea of adjustment of welfare weight: o -> nimmt man einem Reichen einen EUR weg, tut ihm das weniger, als wenn man einem Armen einen EUR nimmt. Economic Policy MIEEP Semster 1 3. Mixed SWF: = Linearkombination aus Rawlsian and Utilarian o y = 0 -> Utilitarian SWF -> cardinal unit comparability o y = 1 -> Rawlsian SWF -> cardinal level comparability o 0 < y > 1 -> Mixed SWF -> cardinal full comparability Economic Policy MIEEP Semster 1 Expected Utility and Veil of Ignorance: Idea by John Harsanyi: - application of expected utility to social „questions“ -> max E (U) for society - assume expected utility maximizes given constant relative risk aversion (= anxioms of Neumann-Morgenstern) o constant relative risk aversion = an individual‘s risk aversion / tolerance scales with their income / wealth proportionally = similar proportional risks are accepted Veil of ignorance: - thought experiment - behind veil of ignorance the likelihood to be born in any position in society is equally likely - (reanimation of the idea „the state as a social contract“) - For I Individuals with a Utility from Income (y) according to their risk aversion (ε) the SWF is given by: - Assuming one particular ε, income distributions of countries can be ranked by their certainty equivilent income (SE): YA= income distribution in country A Example (u.a. see tutorial): o Wichenrieder/Zafar: randomly places into USA vs. into GER is better if the constant relative risk aversion is ε = 2 or higher ▪ ε = 2 is high as average is around 1,2 Critique asks „Should individual risk preferences count for social preferences?“ - if yes, there would be no consideration of social standing in society (which influence risk aversion i guess) - as risk prefs differ -> no guarantee of unanimity Economic Policy MIEEP Semster 1 - decision maker might be uncertain about social position and risk preference (double veil of ignorance) Economic Policy MIEEP Semster 1 Justice and the Idea of a Social Contract: - Hobbes (1651) u.a.: The state as a social contract: 1. Social Contract: state.arises from a voluntary agreement where individuals give up some freedoms in exchange for security and order. 2. State’s Purpose: ensure protection, legal certainty, and common goods 3. State Legitimacy: throguht consent of individuals. - Rawls priciple of justice = lexicografic -> focus on the least well off - Buchanan, Tullock (Calculus of consent 1962): a. Uncertainty = helpful to support constitutional provision, that are generally good to all (e.g. after WWII) i. Less influence of special interests ii. Application e.g. voting rules The (Im)possibility of a social ordering: To what extent can a consistent social ordering (e.g. SWF) be deduced from ordinal noncomparable individual utilities? Kenneth Arrow’s Impossibility Theorem: - Impossible to form social ordering if plausible postulates are imposed: o By complying with postulates we may run into dictatorship to U = e.g. all prefer the same, to R = jede option kann jeden rank haben Economic Policy MIEEP Semster 1 How to save social ordering anyway?: 1. restrict postulate Range and impose assumption of single peaked individual preference (insted of including double peaked preferences) - Singel peaked preferences guarantee condorecet winner Comparision in pairs: Winner for A Winner for B Left vs. center left center Left vs. right Right right Right vs. center center center Overall winner: None Center Due to blue voter (doble = condorecent peaked), preferences winner not transitive -> on a naturally scaled policy dimesion, voters should not prefer extremes over center (sonst wie in A -> doble peaked) 2. Introduce intensity of preferences - Arrows postulates does not invalidate work with SWF’s - But: idividuals have an incentivce to misrepresent their intensity of preferences - > e.g. vote stategiacly to archieve own goal Economic Policy MIEEP Semster 1 Political Decision Making: - Goal: main ide, no deeper level Elections/Question of the required mojority to win - Knut (1896): unaminity -> pareto - Bechanan/Tullock (1962): o unaminity increases time costs (the higher the %, the higher the costs) o Less than 50% - > possiblity that a reversal proposal can win o Single majority: likely to minimize (decision/time cost + exteral cost of losing voters) - Guttman (1998) o 50+1 more efficient as reversal can not win o + B/T ignore cost of not adopting a good proposal (Downs) paradox of Voting (1957): Why go voting, if rationally the likelihood of beeing run over by a car on the way to the booth is larger than likelihood of casting the decisive vote? 1. Taste for voting, sense of obligation a. But: Do they vote their true preference? 2. Expressive Voting (Brennan/Buchanan 1984) a. To gain short term satisfaction (e.g. at least i went, voted green - > good for environment, show discontent - > vote AfD) b. But cost of expressive voting affects everybody (everybody lives with AfD) Downs: realization of negligible effect of voting = insufficient incentive to get informed Condorecet Paradox: - for three or more alternatives pariwise majority voting may not lead to unique selection: o Possibility of voting cycles o Sequence of the voting can have an effect on winning alternative which gives power to agenda setter o Voters may have incentive to misrepresent true preferences Economic Policy MIEEP Semster 1 Median Voter Theorem (Black 1948): Often used to combine politcs and economics: - Assumptions: o All alternatives can be ordered in one dimension o All voters = single peaked preferences o All voters vote - Then: In pairwise voting meian position (m) can not lose unter majority rule o Iwas recht vom median vs median - > alle links vom median + median stimmen für median (= 50+1) o - Limitations: o Generally not extendable to multidimensional problems One single peaked preference with A= Bliss Point, lines = indifferent curves Three single peaked preferences with A,B,C = Bliss points: - AC, CB, AB = distinct Pareto sets (for the two individuals involved) Economic Policy MIEEP Semster 1 - But: Any point on pareto set is dominated (e.g. Z > D, da von B preferred und für A egal -> C kann überstimmt werden) Median Voter may appear in special cases: So far: 1. instability with multidimesional preferences, 2. strong shifts in votes possible, when platform changes Platform = was ich wähle - Forward looking: plattform = “Vertrag”, was die Partei nach Wahl machen will (e.g. Green stands for xyz) (e.g. in MVT) - Backward looking: plattform is performance of candidate in the past However: - Voters might have difficulties to exactly locate platform - Outside random factors are important (e.g. weather) - Politicians are uncertain about voters preferences Probabilistic Voting: Can uncertainty help avoid cycles? Model: - likelihood of voting for a platform is a pos. function of proximity between political preference and platform - Likelihood for alternative 1 is function of platform 1 and platform 2 Economic Policy MIEEP Semster 1 both Plattforms max. Expected number of votes Results: - Unique equilibrium exists (no cycles) - Identical platforms in a two party system (i guess as they are oposites) - Max. Of utilitarian welfare function Majority Vote and Gerrymandering: Gerrymandering is the process of drawing electoral district boundaries to benefit a specific political party, often leading to unrepresentative outcomes in elections. - Majority is ensures, even though proporionally in minority - Named after a USA politician Gerry 18th/19th century in Massachusetts - Today: Gerrymandering increased the share of republican seats o Democrats are inefficiently concentrated in large cities o But: might be unintentional - From tutorial: two strategies: cracking (Gegenerstimmen aufteilen) vs. Packing (Gegnerstimmen in eigenen States konzentrieren) Explanation of political polarization in US: - For “safe” districts, no need to apply to median platform, but to median of own party to directly win seats - But: GM used to win more seats, so more competition in some voting districts, so that competitor “looses” a lot of votes when loosing o Most studies suggest no effect of GM on polarization and elecotoral competition But: polarization may be produced from sorting migration Voting systems (usually combined - I would say e.g. USA, GER) 1. Auswertung/Auswirkung der Stimmen o Plurality vote = “first past the post” = candidate with most votes within district wins o Majority vote = winning candidate needs at least 50% + 1vote o Proportional representation = Bundestag is formed proportionally to votes of parties, in USA (parties country lists) - Economic effects: o Plurality/majority Economic Policy MIEEP Semster 1 ▪ More individual accountability (expectations of electorate) ▪ more “pork belly” policies – trying to do good for district of one which has been voted (to ensure future votes) ▪ Possibly less corruption o Propotial representation ▪ Policies for country-wide groups (opposide of pork belly) Public Goods Roles of the State (Adam Smith 1776): 1. Internal security 2. Foreing defence 3. Provision of public goods, the private sector would never (due to no profits) Classification of Goods 1. Excludability = Exclusion possible at reasonable cost 2. Rivalary = Usage by one reduces value to others Note: - Grapgh = ideal case, there might be crowding/impure public goods - First theorem of welfare exonomics only applies to priviate goods - For all exept private goods, we cannot count on market efficiency Exkurs: First theorem of Welfare Economics: - Under certain condiitions any competitive market equilibrium is Pareto efficient o Perfect competition o Perfect information Economic Policy MIEEP Semster 1 o No transactions costs o Complete markets o Concave preferences/production sets Public Goods Provision Samuelson Condition for Optimal Public Goods Provision = sum of MRS between public and private good equals the MRT -> generalization of the optimal rule for private goods (MRS = MRT) MRS = marginal rate of substitution (-dy/dG) = FOC Utility Function MRT = Marginal Rate of Transformation = FOC Production Function Einsetzen und umformen gibt: MRS1 + MRS 2 = MRT (Samuelson rule) Economic Policy MIEEP Semster 1 Private provision of Public Goods: Result: free rider/underprovision problem Homogenous Actors: Excample: - Additive technology (all contributions are added up) o There are alternatives e.g. weakest link for damms - n identical individuals (i) with given income M with identical preferences - Private good y with price 1, public good G with price p - p = constant marginal cost of production - No inferior goods (secures stable equilibrium) - gi = individual i contribution to G mit Mi = yi + pgi yi = Mi - pgi Total provision: Considering Nash Solution/concept: - individuals contirbution does not affect other individuals contribution - Interior Nash solution with gi, yi > 0 Unterschied zwischen public optimal and private provision: MWP = MRS -> gestrichelte Linien ist Summe wie gem. Samuelon P = MC = MRT Economic Policy MIEEP Semster 1 Bei private provision, werden alle sich gem. fetten Linie verhalten (gesamt G unverändert) -> ein weiterer Nutzer könnte als Freerider ohne Contribution dazukommen Bei public provision würden sich die MRS addieren (gestrichelte Linien), sodass es mehr G gäbe. (siehe G stern 2) Differently sized players Result -> asymetric contribution: - Nash Equi is at G*2, wobei Country 1 nichts contributed, sondern Freerider ist - Generally: small players are expected to free ride on big players - From private point of view -> underprovision all the time Beispiel „Family Economics“: Lea und Maurice heiraten und kriegen Geld von den Eltern. Public Good für die Eltern ist, dass es den beiden (mit Geld) gut geht. Wenn Leas Eltern sehr spendabel sind, werden sich Maurice Eltern ebenfalls freuen und weniger geben, da es den beiden ja schon gut geht. Maurice Eltern = Freerider Economic Policy MIEEP Semster 1 Critique by Caveat: in reality benefits from public good and preferences may differ across players (Private) Mechanisms to overcome free rider/underprovision problem: - Social and ethical norms - Repeated interaction - Lobby groups provide bundle of private and public good (e.g. ADAC) - Small groups have higher incentive as higher per capita benefits (e.g. milk producers have higher benefit to go on strike that milk consumers) Externatilites: = Benefits (positive externality)/disadvantage (negative externality) to third party produced by an action, for which actor does not get compensated for by the market Pecuniary (finanziell) externality = via market system: - E.g. China increases demand for iron, iron price increases, other users feel a cost, but no net disadvantage, as producers who receive higher cost have a benefit Technological Externality = true externality, no cempensation test via market - E.g firms emit pollutant w.o. charge, neighbors have negative externality - E.g. fertilizers vs. water works Beispiel Rechnung auf Folien: 78, 79 -> result: Marginal productivity of pollution = marginal rate of Substitution between pollution and consumption The tragedy of the commons: - Some resources are allocated on the first-come first-serve basis - Overutilization: o As saving for later, may be saving for other (no excludability) o As no compentation of others needed if used more - Paradox: o It may be the least productive soils where it does not pay to establish property rights o Without property rights -> overutilization -> overpopulation in poor areas Beispiel Sahel vs. Guinea slides 82-84 General Remark: Economic Policy MIEEP Semster 1 - Market failure (with externalities) is not an automatic justification for government intervention as there is also government failure - Instead, local instituions could counteract, of social norms could improve problem Internalization Strategies: Coase Theorem (Ronald Coase 1960) - Create property rights (as Externalities arise from missing propoerty rights) - Efficiency proposition: o If mutual beneficial contract can be made without transaction cost, well defined property right are necessary and sufficient to solve efficiency problem (users with best use/highes profit can buy property rights -> efficiency) - Irrelevance hypothesis: o is is irrelevant who receives the property right in the beginning - critique: o even without transactions cost, irrelevance hypothesis is not quite right, because of market power and income effects Comand and Control: - Government define axxeptable use of common pool resource o E.g. prohibition of particular activities (e.g. motorboats in national parks), compulsory usage of catalytic converters in cars - Advantage: o Simple and efficient if corner solution is optimal (verbot = 0 = corner) o No exact measurement of pollutants necessary - Disadvantage: o Technical, no particular attention to costs and benefits o Not efficient if interior solution (optimal overall pollution and optimal individual pollution is unlikely) Pigouvian Tax / Green Taxation (see Ü3 Aufgabe 1,2) - Taxation (of negativ externalities) as substitute for missing price - Need to estimate marginal cost of externality to set price (but random is fine, because all pay the same price and therefore polution reduction can be expected to occur at lowest cost) - Each firm equates marginal abatement cost to tax price o Marginal abatement cost = what does it cost to reduce pollution marginally: Price = a * Pollution nach Pollution ableiten und Vorzeichen umkehren (weil x Achse von links nach rechts lesen) Economic Policy MIEEP Semster 1 o Tax price: Price per Pollution o -> abatement (reduction of pollution) until it reducing further cost more that the tax to pay - Marginal Costs (of pollution) = people who suffer from polluition o Reduced with introduction of tax as less pollution = less costs (negative externalities) Note: if policy makers knew MAC, dmeand and control would also work, by just telling firms to reduce pollution to e* - But they don’t and firm would probably lie about their MAC Graph with two polluters (optimal allocation of the pollution) - Both actors equate MAC to t -> this implied that reduction is done at lowest costs (im Graph rechts, wäre die Kosten nämlich höher) However: in reality mostly no uniform tax rates across economy (e.g. lobbying) Double Divident Hypothis: Green Taxes can be used by Government for good (giving back to producers o.Ä.) Economic Policy MIEEP Semster 1 Subsidies: Subsidy for reducing externility (government pay firm for reducing pollution and by that lowers the MAC) - Property rights are with the polluter, government buys right through subsidy Note: - Cobra Effect = Problem for endogenous number of polluters Economic Policy MIEEP Semster 1 o Subsidy to avoid pollution may attract pollution if reference pollution can be manipulated (if you are paid for killing cobras, you start to bread them) - Better tech -> lower MAC, but subsidy is not a good way to invest in Research and Develeopment (R&D) ➔ Subsidy hardly ever done (auch weil BMF kein Bock hat Geld auszugeben) Tradable Permits: - Government sets total amout of pollution right (e.g. total emissions per year, region) - Licenses for pollution are distributed - grandfathering (w.r.t. past, freely distributed) - auctioning (sold) ➔ There can be trade of licences ➔ Licenses are given back when used/polluted ➔ Freerider problem solved, we expect cost efficiency - Red line = amout of permits - highly important (see contra) pro contra Price is shown Sectors are regulated In the past: reduction in 3. countries - Problem: fake certificates - Reduction would maybe have happend anyways e* (amout of pollution o.Ä.) is seen Additional effort by one -> only worse - Quantitive goal of reduction - costs more (yellow line -> will be reached as we set it! asymetric (different to tax, where e* is - Total emmisions are set found endogenously) (crowding out effect = others will pollute more) Liability Rules: Implemented for highly stochastic externalities -> low probability, high damage Economic Policy MIEEP Semster 1 - (e.g. reactor meltdown, car accident) Form = Polluter pays (opposite to victim pays, usally the case in Economics &Law) - Fault-based liability o Requires negligence compared to common standard - Strict liability o Independent of negligence But: Flawed if liable capital is smaller than damage Therefore: compulsary insurance (Law and Economics) - Car liability insurance - Mandatory insurance for certain professions - Nuclear power plants (probably insufficient) But: - Size of damage might depend on victims actions o expensive car vs. Cheap car -> externality if I buy cheap car o Big car might reduce risk of death in accident - Victims actions are endogenous to liability rules o If I am ensured, I might behave diffently (more riskly) e.g. nuclear reactor meltdown: revenues 100 create damage of 1m at 1% cost enormous -> equity of firm, insurance, guarantees not sufficient -> Government/socieny has to step in - with sufficient equity, expected profit: 100 –0,01*1.000.000 = -9.990 < 0 - with liability limited to revenues, exp. Prof.: 0,99*100-0,001*0 = 99 > 0 -> with limited liability production occurs despite that expected social costs exeed social benefit Possible solution = compulsary insurance: - fair premium of risk neutral ensurer = 0,01 * 1.000.000 = 10.000 - Exp. Prof. = 100 – 10.000 = -9.900 < 0 -> external costs are internalized via insurance (if insurer has sufficient equity/risk consolidation (ausgleich) -> probably not for nuclear power plants Economic Policy MIEEP Semster 1 Should Economic Policy try to correct Internalities? Internalities = costs/benefits for decision maker bears but not internalizes in her decision - might go hand in hand with externalities e.g. smooking, fat diet -> health cost in future, earlier death earlier death: -> positive externality: old age benefits of others -> negative externality: health care of others But: you die anyway, so really? Should economic policy depard from consumer sovereignty? Do governments (expert) know it better? How do we now, that consumers get it wrong? (anecdotal evidence: deferral of difficult decisions “I will stop, but tomorrow”, regrets of old people as watching to much TV) Sin Taxes - Alcohol Tax - Tabacco Tax Ideally: government apllies person specific tax rates (same for externality with different damages across individuas e.g. local pollution, but not possible) Calculate optimal Sin Tax: - Set up Welfare Function including the disregarded Internalities - FOC w.r.t. tax rate Economic Policy MIEEP Semster 1 Economic Policy MIEEP Semster 1 Economic Policy MIEEP Semster 1 Nudging and Tax Moral Nudge = attempt at influencing people’s judgement, choice or behavior in a predictable way by making use of boundaries, biases, routines and habits Type 1 = affecting instrincts and emotions Type 2 = affecting intellectual considerations (e.g. making prices more visible) - Might be deemed less restrictive/intrusive than taxes, public order or prohibition - Similar to marketing - helping to pursue consumers “true preferences” (Liberitarian Paternalism) - Pro-social nudges = not best for every single person, but for society (e.g. organ donation) - The more heterogeneous the better nudging as no costs to it and taxes might not reach all or tax some very much - Nudges might backfire in sensitive areas (e.g. vacination) Tax moral - dodging taxes might be in a person’s self interest as public services are still available to a tax dodger - still might not use opportunity to dodge as tax moral: - Intrinsic motivation to pax taxes or feel guilt of noncompliance - Reciprocal motivation = higher willingness to pay taxes in exchange for functioning government beenfits - Influence of social norms, peer behavior, social recognitions or sanction Is it possible to increase tax moral? - Yes, but only with threats/information about penalties o Not with information about impotance of tax o.Ä. Economic Policy MIEEP Semster 1 In Action: Energy Crisis - Gas and electricity prices are closely linked Merit Order: - ranking of electricity generation units based on their marginal cost of production, from the lowest to the highest. - When electricity demand rises, power plants are called upon to generate electricity in the order of their marginal costs, starting with the cheapest. - the most expensive plant needed to meet demand determines the market price of electricity. This price is often paid to all plants supplying electricity, even those with lower marginal costs. Policy instruments to cushion energy price effects: 1. Clawback Mechanism / Feed-In-Tariff a. Bei hohem demand, bekommen nicht alle Preis 3, sondern nur derjenige (Gas) der tatsächlich zu diesen hohen marginalen Kosten produziert b. Jeder der darunter liegt, erhält nur P4, der politisch festgelegt wird und unter P3 liegt c. Die Differenz zwischen P3 und P4 stellt die möglichen Einnahmen aus dem Clawback-Mechanismus dar. Vorteil: Markpreis wird nicht verzerrt = kein excessive consumption 2. Subsidies for high marginal cost production a. Grenzkosten durch Subventionen reduzieren und so Preis reduzieren Vorteil: Easy to implement Nachteil: Marktpreis wird verzerrt, größere Nachfrage nach subventionierten Ressourcen Economic Policy MIEEP Semster 1 3. Price limit a. Defizite werden vom Staat getragen – nur möglich bei Staat – Monopolen, da sonst Wettbewerber aus dem Markt getrieben werden Nachteil: kein Anreiz zum Stromsparen 4. Subsidies for Energy consumers a. For energy consumption up to specific % level of previous consumption, consumers get a subsidy b. Klare Preiskommunikation Vorteil: Anreiz zum Sparen Inequality and Redistribution Measures of Inequality: - Dimensions differ (e.g. net income, gross income etc.) - Measures differ (e.g. equivalized income = income per capita adjusted to household size, age of members) Income distribution: X = income - Socienty wird nach Höhe den Incomes sortiert (von links nach rechts bzw. Unten nach oben) - Funktion gibt wahrscheinlichkeit an, dass man bei x oder darunter liegt (in %) Economic Policy MIEEP Semster 1 Lorenz Curve - X Achse ist wieder von links nach Rechts von arm nach reich sortiert - Ablesbar = die ärmsten 10% haben 1% des Gesamteinkommens u.s.w. 1st order dominance - An jedem Punkt (percentiles = q) hat man bei rot mehr als bei blau - xq>xq für alle q 2nd order dominance - Man inkludiert eine utility function und sagt, dass an jedem Punkt q der expected utility in rot (F) höher ist als in blau (G) - 2nd order ist gegeben wenn 1st order gegeben ist - Wieso die integrale weiß ich nicht Economic Policy MIEEP Semster 1 Atkinson Index ε = inequality eversion (the higher the more averse) EDE = equally distributed equivalent Idea: EDE generates same welfare per individual (total welface devided by all persons) as unequal distribution Atkinson Index = what do I loose because its not a fair distribution A = 0, is a fair distribution – je näher an 1 desto unfairer Wenn xEDE smaller than average, ist es unfair - in unfairer welt ist der welfare durchschnitt 5, aber in einer fairen verteilung hätte jeder nur 4, also müssen manche deutlich mehr haben als andere In Praxis selten genutzt, da von epsilon abhängig Economic Policy MIEEP Semster 1 Gini Coefficient - Standardizes measure for expected income difference between two randomly selected persons - Am Beispiel - Algebraically Economic Policy MIEEP Semster 1 - The bigger the Belly the more unequal! Economic Policy MIEEP Semster 1 Remarks: - Development Economics: poverty reduction more important than equality - Growing inequality in germany