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Externalities Essay

Externalities Essay
No outside source is allowed for this assignment, so please use the textbook (ch9) and lecture note as reference.
Textbook: Economics of the Public Sector 3rd Edition by Joph E. Stiglitz (ISBN-10: 0-393-96651-8)
The paper should be from 4 to 5 pages (double-spaced) and present the student’s understanding and application of one of the major topics from the course:
? The Appropriate Government Response to Market Failure (Chapter 4);
? Social Choice Theory and Public Choice (Chapter 7);
? Externalities and the Environment (Chapter 9); or
? Cost-Benefit Analysis (Chapter 11)
The paper is due on April 29th.  The instructor will provide possible discussion topics for each paper at the conclusion of the lecture on each chapter.  The extra credit paper should be written on a second topic from those listed above.  It is due prior to the final exam.  The quality of the economic analysis will be the major factor in the determining the paper’s grade.  A sample paper discussing the size of government (Chapter 1) is available on Blackboard.  Students may email a short (2-3 paragraphs) summary of their plans for their papers to the instructor for comment before writing their papers.
Some students especially those worried about environmental problems may wish to do their term paper on Chapter 9.  In order to help them craft their papers, I offer the following suggestions about how the paper could be organized:
a. Executive Summary/Introduction: discussion along the lines of the importance of externalities in a globalizing world and how economic theory must help governments deal with these problems so as not to hamper economic growth and efficiency
b. Economic Theory: presentation of the definition of what externalities are, why they are market failures, and illustration with a few examples
c. Public Policies to Control Externalities: a differentiation between policies that impede markets, also known as command and control policies, and policies that work through markets be adjusting incentives of those who create externalities; justification of why the latter types of policies are preferable and a discussion of how corrective taxes and marketable permits work
d. A Current Example Illustrating How Economic Theory Can Help Governments Deal Effectively With Externalities: perhaps the easiest example to use given the material to be presented below would be how marketable permits are helping reduce the problem of climate change; if current policies are to be faulted, blame could be placed on politicians and their perceived inequitable assignment of allowable pollution rights to China and India, not the economics of marketable permits themselves
e. Personal Thoughts: each student’s own opinion about the need to address climate change issues could be offered in a concluding paragraph

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