Notes on market failure and the Paretian (Kaldor-Hicks) relevance and irrelevance of unfavourable externalities

The following are notes that have been distributed by me over the last few years to students in Environmental Economics at The University of Queensland. They give particular attention to whether externalities are Pareto or Kaldor-Hicks relevant from a policy point of view. Externalities are Kaldor-Hicks or Pareto irrelevant if no change is possible for which gainers could compensate losers. Both absolute and marginal externalities may be Kaldor-Hicks relevant. Infra-marginal negative externalities are often, but not always, Kaldor-Hicks irrelevant. There are at least two cases where such externalities can be relevant. First, the absolute impact of the negative externality may be so great that the source of the externality should be eliminated. Secondly, if the externality arises from production, its nature may depend on the type of production technique adopted. Although for the technique adopted, an infra-marginal negative externality occurs. That is Paretian irrelevant given that choice of this technique is the only available possibility, alternative techniques may actually be available in practice. Some of these may generate even smaller total external effects and be socially preferable. Both cases are outlined and illustrated in these notes. The analysis reveals the dangers of relying on marginalism for deciding on environmental policy. Total (external) effects are often of great social and economic importance and appropriate social choices cannot be made on the basis of marginalism alone.

Testing for Market Power in Multiple-Input, Multiple-Output Industries: The Australian Grains and Oilseeds Industries

Recent empirical studies have found significant evidence of departures from competition in the input side of the Australian bread, breakfast cereal and margarine end-product markets. For example, Griffith (2000) found that firms in some parts of the processing and marketing sector exerted market power when purchasing grains and oilseeds from farmers. As noted at the time, this result accorded well with the views of previous regulatory authorities (p.358). In the mid-1990s, the Prices Surveillence Authority (PSA 1994) determined that the markets for products contained in the Breakfast Cereals and Cooking Oils and Fats indexes were "not effectively competitive" (p.14). The PSA consequently maintained price surveillence on the major firms in this product group. The Griffith result is also consistent with the large number of legal judgements against firms in this sector over the past decade for price fixing or other types of non-competitive behaviour. For example, bread manufacturer George Weston was fined twice during 2000 for non-competitive conduct and the ACCC has also recently pursued and won cases against retailer Safeway in grains and oilseeds product lines.

Economic incentives for global conservation of wildlife: New international policy directions

Growing economic globalisation by extending the operation of markets is a two-edged sword as far as nature conservation is concerned. In some circumstances, it threatens the conservation of nature and in other cases, it provides economic incentives that foster the conservation of biodiversity. This article shows how global policy directions have altered in that regard. Initially the World Conservation Union (IUCN) favoured bans on trade in endangered species. This view was enshrined in the Convention on International Trade in Endangered Species (CITES). Subsequently, with the upsurge of support for market-based economic liberalism, IUCN recognised that economic and market incentives, if linked to appropriate property rights, could foster biodiversity conservation. This is reflected in the International Convention on Biological Diversity. While there is conflict between this convention and CITES, its extent has been exaggerated. As explained, in certain cases, trade restrictions of the type adopted in CITES are appropriate for nature conservation whereas the market-oriented policy of the Convention on Biological Diversity can be effective in some different situations. Whether or not the extension of markets in wildlife and wildlife products and growing economic globalisation favours nature conservation varies according to the circumstances.

International market selection: Developing a model from Australian case studies

This paper develops a theory that firms seek out new country markets on the basis of expected commercial returns. These expectations depend on judgements about the attractiveness of the market and the firm's competitive position in it, which in turn are influenced by informants. It is the number and strengths of these informants that will underlie the probability of a country being identified and assessed as a new market by any firm.

Scoring occupational categories for social research: A review of current practice, with Australian examples

The scoring of occupational categories has along history. After reviewing the historical background, we develop and discuss the properties of two new Australian scales based on current theorising in stratification research. The first is based on the operation of the labour market and scores occupations to reflect their central role in converting educational credentials into market income. The second is based on patterns of social interaction and scores occupations to reflect the choices that people make in marriage markets. While these two scales are not theoretically or empirically equivalent, they are closely related and provide equally valid, but alternative, ways of measuring the underlying stratification order of modern societies.