It is the subject of debate. It is argued that the state should not actively participate in economic life. In particular, supporters of liberal economics think so. Representatives of Keynesianism, on the contrary, argue for the need for government policy to influence economic processes.
By accumulating and redistributing financial resources, the state ensures adjustments to the market mechanism and influences the generation of income and the functioning of markets.
Thus, organizational, social and economic functions determine the required volume of financial resources, the structure of budget expenditures and the corresponding structure of its income.

All economic systems that exist in the real world are mixed (with increased influence of the state or market). In such systems, the state and the market system share responsibility for five economic functions:

• Formation and implementation of legal and social activities
• Maintaining competition in markets
• Income redistribution
• Redistribution of resources
• Stabilization of the country's economy

These economic functions help strengthen and simplify the operation of the market system, modify pure capitalism in the direction of achieving the economic and social goals of society.

In the course of macroeconomic regulation, the state performs the following economic functions:

• Develops and approves the legal foundations of the economy
• Determines the priorities of macroeconomic development i.e. identifies among macroeconomic goals those that are most important at a given stage of economic development.
• Provides normal conditions for the operation of the market mechanism, including implementing antimonopoly policy.
• Carries out regulation of economic activity to achieve set goals based on the implementation of a certain economic policy
• Complements the market mechanism in those areas of economic activity where there is insufficient efficiency.
• Solves the problems of social protection of the population, ensuring its socio-economic rights and more fairly distributing income among members of society.

Public goods are goods and services provided by the state to its citizens on an equal basis. Such benefits cannot be provided to individuals without providing them to others. Public goods include, for example, defense, free education, public services of municipal clinics, visiting libraries, parks, etc. These benefits are equally available to all people, and there is no charge for using them. You can give examples of such benefits yourself.

The production of public goods is undertaken by the state, because for the most part it is unprofitable for private producers, and the development of such areas as healthcare, education, basic sciences, and environmental protection cannot occur only on the basis of private entrepreneurship. The production of public goods requires significant financial resources, and the state receives them by collecting taxes. Thus, all citizens contribute to the payment of public goods.

The role of the state is also significant in those areas in which exclusively private enterprises operating according to the laws of the market operate. State intervention in these areas is caused by the problem of external (side) effects or impacts.

External effects- costs and benefits associated with the production or consumption of goods for third parties. The economic activity of some may cause consequences that affect persons not directly involved in the production and consumption of these goods.

There are negative and positive externalities. Negative effects arise when costs arise for other persons (remember, those not involved in production) as a result of the production or consumption of a good, and positive effects arise when these persons receive benefits that are not compensated by them to the producers of the good. Let's look at specific examples.

Let's imagine a wood processing plant on the bank of a river, which pollutes this river many kilometers downstream with industrial waste. This is an example of a negative production externality for the population living along the river. At the same time, such a side effect of production may not affect the price of the plant’s products. The manufacturer, as it were, transfers part of the costs associated with the production of goods (in this case, these could be the costs of processing production waste or the construction of treatment facilities) to the population, without in any way compensating for these costs. Who will help the population cope with the negative consequences of production? The state is forced to incur additional costs for water purification, maintaining people's health, etc. It compensates for the side effects of the plant's activities. Examples of negative externalities of consumer activity include smoking in public places, littering in recreational parks, etc. P.

An example of a positive externality would be the activities of military factories. In an effort to provide such public services to the population as defense and security (for which the consumer pays taxes), manufacturers simultaneously contribute to scientific and technological progress, the results of which we all use for free. To compensate military enterprises for this external effect, the state can raise prices for military products or provide them with subsidies.

Compensation for external effects- an important function of the state in a market economy.

With the development of society there is an expansion and clarification of the functions of the state. This process proceeds in the following directions: a consistent transition from direct (administrative) to indirect (economic) methods of regulating the economy; strengthening the role of the state in solving social problems (reducing income differentiation, ensuring stability in society, regulating labor relations). Qualitatively new functions of the state are also emerging, associated with the formation of a post-industrial society. This is support for fundamental science, participation in solving such global problems of mankind as you know, such as overcoming the environmental crisis and its consequences, eliminating the economic gap between third world countries and the leading Western powers, and arms reduction.

The most important function of the state in a market economy is to support and ensure the functioning of the market system. Typically, the state in the economy is assigned the role of compensating for market imperfections. However, it has functions that fall within its exclusive competence. With the growing complexity of relations between the state and entrepreneurship, the economic tasks of the modern state are not only associated with creating conditions for the functioning of the market, but also imply recognition of its role in maintaining the balance of public interests, social stability and protecting national interests.

The state in Russia, which is being renewed on a market basis, is occupied not so much with organizing and regulating production, leaving the solution of this task primarily to the market, but rather with exercising control over the economy and choosing priority directions of economic policy.

The implementation of economic policy involves the use of certain tools (methods, forms of regulation). His choice is determined by the state of the national economy, the priority direction of economic policy, and the currently dominant theoretical concept of regulation.

Under external effects (externalities) refers to changes in the welfare of subjects that are not caused by their actions in the market and are not reflected in prices. Since externalities are not reflected in the market pricing mechanism, they lead to a decrease in the efficiency of its operation and to suboptimal allocation of goods in the economy or otherwise, resource spillover.

Externalities can be negative or positive. Negative externalities are accompanied by negative consequences for third parties, that is, persons who are not participants in a market transaction. They lead to spillover costs, which means incomplete reflection in the supply and demand curves of all production costs of a particular product. As a result, resources for the production of this product are supplied in excessive quantities, the equilibrium production volume Qe is higher than the optimal Qo - its overproduction is observed, and the equilibrium price Pe is lower than the price Po, which would occur if spillover costs were taken into account (Fig. 9.1.).

Figure 9. 1. Negative externality

A negative externality is the cost of using a resource that is not reflected in the price of the product, such as damage from water pollution. If MEC is used to denote marginal external costs, that is, additional costs associated with the production of each additional unit of output, which are not paid by producers, but are transferred to third parties, and through MPC, marginal private costs, which include only the cost of services of those resources that the firm buys or owned, then with a negative external effect, marginal social costs MSC = MPC + MES.

The state, in an attempt to correct negative externalities, pursues various policies, either by establishing legislative norms or by imposing corrective taxes.

With a positive external effect, benefitsoverflow. Resources enter the production of a given product in insufficient quantities and the equilibrium volume of production Qe is below the optimal Qo, its underproduction is observed (Fig. 9.2.). the marginal individual utility of a given good (MPB); marginal social utility by the value of the benefit external to a given transaction, MEB;, marginal social cost MSC = MPB +MEV.

Rice. 9.2. Positive externality

Positive externalities lead to benefits for third parties.

In general, the state uses two types of regulatory measures to transform external effects into internal ones: legislative restrictions and tax measures in the form of corrective taxes and subsidies. When there is a legal limit on pollution, the government sets emission standards such volumes and types of pollutants that can be discharged in permitted quantities free of charge. Further increases in emissions are prohibited. Legislative restrictions encourage firms to comply with regulations, but do not provide incentives to reduce emissions below established standards.

Corrective tax(Pigou tax) is a tax imposed on the producer of a negative externality. It is set in an amount equal to the marginal external cost for each unit of output. In conditions of free competition, this leads to the fact that the price of the good sold rises until it becomes equal to the marginal social cost of production of this good and the production of products with negative externalities is reduced to the optimal level.

Corrective subsidy is a payment to consumers or producers of a good whose consumption creates a positive external effect. An adjustment subsidy aims to internalize an externality by exerting a downward effect on the price of consumption of a good that will increase its output to an efficient level. The corrective subsidy is set in an amount equal to the marginal external benefit for each unit of output with positive externalities.

Externalities theory

Externalities, or externalities, arise in a situation where part of the benefits or costs associated with a particular type of activity or factor of production goes to outsiders, that is, when the value of an individual's utility function or the production function of an enterprise is directly influenced by the production or consumption behavior of other individuals or organizations.

With negative externalities, an individual or firm transfers part of the costs to others. The most obvious example is air pollution from factories or cars, which represents an external cost because it reduces the well-being of others.

With positive externalities, outsiders receive some benefits for free. For example, if a person has been vaccinated against an infectious disease, the likelihood of getting sick is reduced not only for him personally, but also for those with whom he comes in contact.

Regulation of external effects. Shared resources The concept of externality. Externalities in consumption and production. External effects and loss of efficiency. Methods of state regulation of external effects. The problem of choosing a method of influence. Coasean and Hobbesian approaches. Characteristics of common resources: non-excludability and rivalry. Tragedy of the commons Problems of regulating access to common resources Analysis of the task: “Legal regimes and efficiency” Working materials for the topic: Reference material:

External effects- consequences of actions that affect the welfare of other individuals or the profits of firms and are not reflected in market prices. In general, actions that are not followed by compensation

Pigou taxes – compensation established by the government for those who suffer from negative externalities, taken from those who produce the negative externalities

Coasian approach to solving externalities– a recipe for judges: clearly establish property rights, and the subjects themselves will figure out what amount of compensation should be paid to each other for the harm caused.

The court answers only one question - Who is to blame?

Hobbesian approach to solving externalities– a prescription for judges: clearly establish property rights and determine the amount of compensation that must be paid for the harm caused.

The court answers two questions - Who is to blame? What to do?

Consequences of externalities

1. Negative production costs. Let's assume that the chemical plant is located higher up the river than the brewery. In this case, the production of chemical products imposes additional costs on the beer manufacturer (additional water purification, etc.).

This means that the marginal social costs of producing chemical products exceed the marginal private costs by the amount of external marginal costs. Consequently, the level of production of goods that create negative externalities will be excess.

Rice. Figure 4.1 shows traditional supply and demand curves. In the absence of externalities, the resulting market equilibrium Q m is efficient. In the presence of externalities, the chemical plant's supply curve will not reflect marginal social cost, but only marginal private cost.

Rice. 4.1. Consequences of negative production externalities

P Quantity (marginal benefit); MPC – (marginal private costs); MSC – Marginal Social Cost

Efficiency requires that marginal social cost equal the marginal utility of increasing output: production must be at point Q e, at the intersection of the marginal social cost curve and the demand curve. The efficient level of production is lower than the market equilibrium level.

2. Positive externalities of production. One example of such a situation would be firm-funded research and development.

If their results become available to other firms, then they have a net gain without incurring any costs to obtain it. The marginal social cost of research and development is therefore less than the marginal private cost. After all, companies that do not incur costs, through free access to the results of research and development, achieve reduction in their costs.

In Fig. 4.2 the marginal social cost (MSC) curve is below the MPC curve (the excess of the MPC over the MSC is the marginal external benefit - MEB). The volume of research and development provided by the company bearing the costs for them is set at Q m, i.e. turns out to be less than the socially effective level Q e .

Rice. 4.2. Consequences of positive production externalities

Q e Q m Quantity D (marginal benefit) MPS (marginal private cost) MCS Marginal social cost

Taking into account the fact that the firm financing research and development receives only private benefits, it will not be interested in implementing them in an amount equal to the socially efficient one.

3. Negative externalities of consumption. If we assume that the village is located along the highway, then the cars of summer residents passing through it bring various kinds of inconvenience to the residents of this village in the form of air pollution, noise, and road congestion.

In Fig. Figure 4.3 shows the marginal utility and cost of using a car for its owner.

Rice. 4.3. Consequences of negative consumption externalities

The number of trips to the dacha by a motorist will be Q m, that is, it will be set where MРВ = P (where the price is the cost of gasoline, oil, tire wear, etc. for one trip). The socially efficient number of trips, however, would be less than Q m, namely - Q e, that is, it would correspond to the quantity at which MSB = P.

Here, the excess of MPB over MSB is MEC (for consumers).

4. Positive externalities of consumption. If we again turn to the example used above, we can argue that if many summer residents begin to use the electric train instead of cars, the residents of the village located on the highway will benefit. As a result, the marginal social benefits of traveling by train will be greater than the marginal private benefits. To represent such a situation in Fig. 4.3, it is enough to swap the positions of MPB and MSB.

In this case, the excess of MSB over MPB is MEB.

5. Shared resource. In the commons problem, marginal social benefits are less than marginal private benefits.

Consider a lake in which the total number of fish caught increases with the number of fishing boats, but disproportionately, so that the number of fish caught per boat decreases as the number of boats increases.

The marginal social benefit of an additional boat is therefore less than the average catch from each boat. As shown in Fig. 4.4, some of the fish caught from an additional boat would have been caught from some other boat anyway.

Private income for an additional individual deciding whether to buy a boat is simply average income, which is much higher than marginal social income (since all boats on the same lake catch the same amount of fish).

Rice. 4.4. Consequences of a special class of externalities – the “common resource”

(SUL – average catch per boat; ECL – effective number of boats; RR – market equilibrium; CL – number of boats; IL – costs per boat; POO – marginal social return; UL – catch per boat)

Thus, since private market equilibrium entails the equality of average revenues and costs per boat (assumed constant), social efficiency requires that marginal social revenue equal costs per boat.

Summarizing the consideration of external effects, we can formulate the following conclusions.

First, whenever there are negative externalities, too much is produced or consumed.

Second, whenever there are positive externalities, too little is produced or consumed.

Finally, it is clear that in each case where externalities are present, the market does not equalize MSB and MSC.

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13.1 Externalities

External effects (they are also called externalities) are the influence of the activities of one economic agent on the welfare of another, which is not reflected in the market price of the good. With a negative external effect, third parties not involved in the transaction (that is, these are neither sellers nor buyers) bear costs. With a positive externality, third parties have benefits.

As we showed in previous chapters, prices are the best carrier of information in a market economy, allowing millions of buyers and sellers to receive relevant signals and coordinate efforts. However, in the presence of external effects, the market mechanism fails: after all, prices do not reflect the interests of all market participants, and the market equilibrium is no longer effective.

Let's take a closer look at the effect of negative and positive external effects

In order to assess the impact of externalities on market equilibrium, we turn to the familiar supply and demand schedules. From the chapter “Demand” we remember that demand represents the willingness to pay for a product of the marginal buyer, who chooses between different options for satisfying consumer demand. That is, demand reflects marginal private benefits (MPB). The supply of a good reflects the marginal cost of producing a good for producers who have the resources and make choices between the production of different goods. The supply curve reflects the marginal private cost (MPC).

In the presence of external effects in the market, there are interests of third parties, externalities, that are not taken into account in the price. These are external effects: marginal external benefits (MEB) or marginal external costs (MEC).

The following types of external effects are considered:

1. Negative externality in production
2. Negative externality in consumption
3. Positive externalities in production
4. Positive externality in consumption

13.1.1.Negative externality in production

The most popular example of a negative externality in production is environmental pollution. For example, a large industrial plant discharges wastewater into a river and releases carbon dioxide into the atmosphere. As a result of this, the interests of many people are infringed: people can no longer swim in clean water and breathe fresh air, real estate and land in the cottage village located nearby on the river bank begin to fall, and the nearby fishery begins to lose its fish catches. None of these effects are taken into account in the price of the plant's products.

In this case, marginal social cost (MSC) turns out to be greater than marginal private costs (that is, plant costs) by the amount of marginal external costs (that is, by the magnitude of the external effect):

MSC = MPC + MEC

Graphically, this situation is depicted as follows:

When there is a negative externality in production, marginal social costs are higher than marginal private costs. In this case, marginal social benefits are equal to marginal private benefits.

In this case, the market equilibrium is at point, while the socially optimal equilibrium is at point B.

That is, from the point of view of society, less goods should be produced and consumed, and they should cost more.

13.1.2. Negative externality in consumption

It is also possible that the consumption of a good is accompanied by a negative external effect for third parties. A classic example is listening to loud music. In this case, your consumption creates costs for your neighbors.

In this case, the marginal social benefit (MSB) is lower than the marginal private benefit (MPB) by the amount of the marginal external benefit (MEB).

MSB = MPB - MEB

From the point of view of the public interest, fewer goods should be produced and consumed, and they should cost less.

13.1.3. Positive externalities in production

A classic example of a positive externality in manufacturing is innovation. Firms in the process of production activities, in search of effective methods of production, often resort to innovations, which soon become available to the whole society.

In this case, marginal social cost is lower than marginal private cost by the amount of marginal external cost:

MSC = MPC - MEC

If there is a positive external effect in the production of a good, from the point of view of public interests, more of the good should be produced and consumed, and it should cost less.

13.1.4. Positive externality in consumption

Let's say you decide to improve your own entrance. With your money you buy beautiful bushes and trees, hang beautiful paintings on the walls. But not only you, but also the rest of the residents of the entrance benefit from your purchase.

In this case, third parties benefit from your consumption process, and the marginal social benefit becomes higher than your marginal private benefits by the amount of your neighbors' marginal external benefit:

MSB = MPB + MEB

From the point of view of public interests, more goods should be produced and they should cost more.

These examples of external effects allow us to conclude: in case of negative external effects, in production or consumption, from the point of view of public interests, less of the product should be produced, that is, it should be produced in excess quantities. With positive externalities, on the contrary, the product is produced in insufficient quantities. That is, from the point of view of public interests, more goods should be produced.

Since externalities lead to inefficient allocation of resources, society seeks ways to eliminate them. Elimination of externalities consists of turning external effects into internal costs or benefits, and this process is called "internalization".

Internalization is the conversion of external effects of third parties into internal costs or benefits of market participants.

One way to internalize externalities is by taxing or subsidizing participants that produce negative or positive externalities.

One of the ways to internalize a negative external effect in production, for example, when polluting the environment, is taxation of enterprises that produce harmful emissions. These taxes are called "Pigou taxes" named after the American economist Arthur Pigou, who first proposed the internalization of externalities in this way.

The Pigouvian tax increases the marginal cost of the plant so that the new price and output are in the socially optimal interest:

In the case of a positive externality in production, the state can subsidize the production of a good, for example, by providing tax benefits to innovative enterprises.

But besides government intervention, there are also private ways of internalizing external effects, when the parties can independently agree to eliminate external effects, and this is stated by the great Coase theorem.

13.1.6 Coase theorem

The materials in this section are not published on the website, but are available in the full version of this manual, which I use in classes with students.

At the beginning of the chapter “Market Equilibrium,” we argued that it is the presence of multiple markets in which consumers can alternatively satisfy needs and producers can alternatively decide what goods to produce from available resources that makes an economy efficient, allowing participants to extract the necessary information from prices. In court settlements, issues of externalities and disputes between parties are best resolved when they have the maximum number of opportunities available to them to develop joint solutions.

Based on the above reasoning, let's try to analyze which method of regulating external effects is effective. Consider the well-known case of environmental pollution, which is a negative externality.

Three ways to regulate environmental pollution can be proposed:

1. Forced reduction in production volumes
2. Taxation of hazardous industries
3. Organization of the pollution market

Let's look at each method in more detail.

Forced production cuts that are the same for each firm are not an effective economic solution. Different companies may pollute the environment in different ways. Requiring all companies to cut production by the same amount would not be an effective solution. Further, some companies have low abatement costs and may prefer to spend money on additional equipment without reducing output, while some companies have high abatement costs and would prefer to reduce output or pay a fine.

In this regard, Pigouvian taxes are a more effective method of eliminating externalities. Some companies will choose to spend money on wastewater treatment plants and pay less taxes, while some will choose not to reduce emissions and pay taxes. But with Pigouvian taxes, we forgot the conclusion of our previous analysis: pollution is not effective in itself, but because it has a negative effect on various external agents, for example, on the owners of nearby fish farms. With Pigouvian taxes, factories have incentives to reduce emissions, but then farm owners have no incentive to install pollution control equipment themselves. If farmers have lower costs of eliminating the consequences of pollution than factories, then Pigouvian taxes will be an ineffective way to solve the problem in terms of social costs.

The third way is to organize a market for pollution permits. This means that the plant producing pollution must buy on the market the right to pollute the environment in the amount of a certain number of units of pollution (we are talking about pollution quotas). The initial distribution of pollution quotas is structured in this way: those who have technology with a low level of pollution receive a large quota. Whoever has a high-polluting technology gets a smaller quota. Next, a quota market is organized between the participants.

Let's look at the model operation of such a market using our example of a farm and a factory.

In our example about a factory and a fishing farm, the initial distribution is as follows: the farm has all the pollution quotas (because its activities do not pollute the water at all), the factory does not have them at all. Now, in order for the factory to carry out its activities, it must buy them from the farm. At what price will the farm sell the right to pollute the air to the factory? Let's look at the logic of the farm. If the plant does not pollute the water, then the farm does not incur costs as a result of the negative externality. But at the same time, it does not receive anything from the sale of pollution quotas. When the farm begins to sell quotas, the plant may begin to pollute the water. In this case, the farm will begin to incur costs equal to the negative externality of water pollution from the plant, but, at the same time, will begin to receive revenue from the sale of pollution permits to the plant. If there are many similar farms and plants, and information about their activities is publicly available, then the price of pollution will be set at the level of the farm’s costs of installing treatment facilities. If the cost of installing treatment facilities is lower for the plant, then it will prefer not to pay the farm for pollution permits, but to install treatment facilities on its own and not pollute. In any case, the optimal solution from the point of view of society will be found.

And in this sense, organizing a competitive market for pollution permits turns out to be an even more effective method of eliminating externalities compared to a Pigouvian tax.

The need for state influence on the economic sphere and the degree of this influence depend on an extremely large number of factors: both on the state of the market economy as a whole and on the strategy of state economic development. The main reasons for market failures (failures) and government intervention are as follows:

1. Monopoly power. Pareto-efficient equilibrium in production and consumption can only arise in the market perfect competition. However, real markets are very far from such a state. In this regard, it is necessary to consider the problem of monopoly and the choice of an adequate government response.

2. External effects or externalities– direct impacts of one economic counterparty on the results of the activities of another or on a third party not directly included in the market for a given good, i.e. is neither a seller nor a buyer.

Externalities can occur both in the production and consumption of goods. In this case, external effects can be both negative and positive. Positive externality(benefit) occurs when the consumption or production of one entity results in an increase in the utility of some other consumers or an increase in the profits of some other firms. For example, flu vaccinations are given in the market for paid medical services. In this case, not only the consumers of this service benefit, but also other people, since as a result the total number of people sick with influenza decreases. Negative externality(cost) occurs when the consumption or production of one entity reduces the utility of some other consumers or reduces the profits of some other firms. For example, a petrochemical plant pollutes water in a city, resulting in increased moral and material losses (for medicines) for its residents. Here, the production process of one enterprise leads to a reduction in the level of consumption of many individuals.

The main ways to regulate negative externalities are as follows:

– administrative and legislative control;

– creating incentives to limit undesirable activities (Pigou tax, subsidies, compensation for damage caused, etc.). Pigouvian tax is established for each unit of product produced by an enterprise producing a negative externality. In order for the tax to fully compensate for the negative consequences of production for society, its value t must equal the external marginal cost at socially optimal output. Coase theorem argues that regulation of negative externalities can be carried out without government intervention in the form of compensation by the source of negative externalities to the affected party;

– indirect government intervention;

– internalization of external effect, i.e. transformation of external costs into private ones.

3.Public goods. Most economic goods are private. They are purchased by private individuals and consumed by society. However, there are also numerous and very important public goods that are not limited only to the sphere of private interests (state defense, communications, maintaining public order, etc.). A public good has the following properties:

– non-excludability – it is impossible to deprive the consumer of using this benefit, even at his own request;

– indivisibility – an individual cannot choose the volume of consumption of a good;

– non-competitiveness – with an increase in the number of consumers of a good, the level of consumption of each of them does not decrease.

If some product (service) has all three properties, then it is called a purely public good. Note that there are extremely few purely public goods. Consumers benefit from a purely public good whether they pay for it or not. This consumer behavior is called free rider problems: a condition associated with the non-excludability of a good, when an individual rationally conceals his desire to pay for a public good, expecting to receive a benefit without paying for it.

4. Asymmetry of information. Achieving Pareto efficiency implies absolute awareness of buyers and sellers about the properties of consumed goods, but in practice such awareness is unattainable. Obtaining information about the quality of a product is expensive, so sellers often know much more about the characteristics of a product than buyers. Consumer protection societies, independent examinations, and public awareness in the media and specialized literature can play a certain positive role in the field of consumer awareness. But this is often not enough. The state should take on the main responsibility for eliminating undesirable external influences. First of all, this concerns the legislative field: prosecution of fraud under the law, regulation of labor relations and legal disputes, etc.

What needs to be done to correct this market failure? It is necessary to ensure that the person generating the external effect takes into account external costs or receives a reward for external benefits. There are three approaches to solving this problem: internalizing externalities, introducing corrective taxes and subsidies, and securing rights to all resources in accordance with the Coase theorem