Question

1) The costs of many environmental regulations can be calculated in dollars - for instance, the cost of scrubbers that reduce the amount of air pollution emitted by a coal factory. The benefits of environmental regulation often are most directly measured by lives saved (reduced mortality) or decreases in the incidences of a particular disease (reduced morbidity). What does this imply about the cost-benefit analysis of environmental regulations? There is an old saying "You cant put a price on human life." Do you agree or disagree? Explain why.

2) Suppose you were asked to find the effects of seat belt regulations on road accident fatalities. Would you choose to run a randomized experiment or would it make sense to use a natural experiment? Explain your answer.

3) What is the difference between willingness to accept and willingness to pay? For a trade to take place what is the necessary relationship between these two? Explain your answer.

Answer 1

1. The costs of many environmental regulations can be calculated in dollars - for instance, the cost of scrubbers that reduce the amount of air pollution emitted by a coal factory. The benefits of environmental regulation often are most directly measured by lives saved (reduced mortality) or decrease in the incidences of a particular disease (reduced morbidity).

The cost-benefit analysis says that the marginal benefit from the environmental regulation and the marginal cost of environmental regulation must be equal.

The additional dollar spent on scrubbers should be equal to the one additional life saved due to its benefit on controlling environmental pollution. Then, using scrubbers in coal factory is efficient only when marginal benefit must be greater than the marginal cost.

I strongly disagree with this statement. The pollution that any factory emits is considered as public goods which creates negative externality on everyone out there. The cost of keeping life and health in danger due to environmental pollution is much higher than the benefits that we get while overproducing in factories or any pollution emitting activities.

2. I would choose to do a natural experiment as road accidents are natural and random in itself outside the control of investigators  We can not do random experiment.we can not make a control group and deliberately make people not to make people use seat belt. This is completely unethical and crime.

3.willingness to accept means what is the minimum amount. I am willing to accept or let go . eg, Pollution

willingness to pay means what is the maximum amount at or below which I am willing to buy the goods.