WELFARE STATE, REGULATIONS AND ENVIRONMENT

[EM1302] WELFARE STATE, REGULATIONS AND ENVIRONMENT

This course analyses the role of government in modern societies, with a focus on the protection of the environment. The first part of the course reviews the concepts of efficiency and equity and analyses the theoretical conditions under which markets are efficient. Then we move away from this benchmark and analyse the various causes of market inefficiencies and market failures and discuss if and when there can be a role for state intervention. In the second part of the course we will see how concepts studied in the first part will help us understanding the current debate on environment and pollution. We will then stress the specifics of the environmental issue stressing its global nature and the challenges associated in designing a global solution.

Students should be familiar with basic economic concepts, such as: supply & demand functions, consumers' surplus, opportunity cost, marginal analysis, and time discounting. It may be helpful to review a microeconomics textbook such as Intermediate Microeconomics: A Modern Approach, Hal R. Varian.

We will cover selected topics from those below.

• Brief historical perspective on the role of government and its market intervention.
• Review of basic economic principle and assumptions.
• Market analysis under the assumptions that guarantee market efficiency.
• Welfare theorems and market efficiency.
• Understanding market failures and scope for market/institutional design:
• Failure of competition.
• Moral hazard and adverse selection.
• Incomplete information.
• Externalities.
• Free riding of public goods.
• Incomplete Markets.
• Social insurance: Moral hazard and adverse selection.
• Public mechanisms for allocating resources.
• The environment: a global problem requiring a global solution and coordination.

Most of the topics in the course are covered by Economics of the Public Sector, Norton, by Joseph E Stiglitz, which is the suggested reference. An alternative text is Public Finance, Global Edition, by Harvey Rosen and Ted Gayer. The part focusing on the environment as a global problem follows the discussions that can be found in Global Carbon Pricing—The Path to Climate Cooperation (edited by David JC MacKay, Axel Ockenfels and Steven Stoft), MIT Press, 2017. We may also review readings from Stavins, R. N., ed. Economics of the Environment: Selected Readings, Sixth Edition. New York, New York: W. W. Norton & Company, 2012.

The course will be examined by a two-hour written examination at the end of the module. The exam includes a) open questions requiring short, specific answers and/or multiple choices; b) more complex open questions, requiring a longer and more structured answer; and c) classical exercises/problem solving.

The course will consists of 15 lectures. Depending on the number of students, I may or may not include student presentations of some additional material.

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