Unit 1 Micro: Public Bads

A public bad is the opposite of a public good – it provides disutility or dis-satisfaction to people when consumed and therefore reduces our economic welfare.

A good example to look at would be the disposal of household and commercial waste. People are normally prepared to pay a price for their household waste to be collected and disposed of in a safe and non-polluting way. But if waste was changed for according to how much had been generated, then some people would find an incentive to dump their waste on other people’s property and thereby avoid direct charges – this would be a free-rider problem. Some local council authorities in the UK have considered a policy of charging according to how much waste is collected.

Waste creates external costs

* Human costs such as exposure to respiratory diseases and increasing risk of birth defects
* Clean up costs including collection and disposal costs and the money spent on cleaning up contaminated land
* Noise and air pollution
* Visual pollution / general dis-amenity
* External costs from the transportation of waste products

Hierarchy of waste management

(1) Reduction of waste
(2) Reuse the product - waste materials are put back into the raw product stream
(3) Recycle or compost the product
(4) Recover the energy e.g. by incinerating
(5) Disposal of the product using landfill

Disposal is the least favoured option – at the bottom of the waste hierarchy

Policy options for waste

Environmental taxes e.g. charges e.g. for waste water treatment and waste collection and disposal.
Subsidies e.g. for recycling initiatives e.g. Deposit refund schemes
Information and awareness raising
Improving producer responsibility
Specific targets – e.g. disposal of “end of life” consumer products
Incentives for innovative uses of waste - see this example from Brazil

The Power of Rubbish

Inside Story - Wasting food