- 08/08/2019 at 4:39 pm #1620048EduGorillaKeymasterSelect Question Language :
Direction: Read the following passage carefully and answer the questions that follow.
Natural resources can be classified into two broad categories – renewable resources and non-renewable resources. Examples of non-renewable resources are coal, crude oil, natural gas and minerals. The stocks of these resources are finite and hence society’s problem is optimal depletion of the resources over time. Fisheries, forests and water in lakes and rivers and groundwater are examples of renewable resources. These resources are capable of self-production and their stocks can increase with time only if their rates of harvesting are below their natural rates of growth. Renewable resources can be under private property, common-pool resource or open-access resource regimes.
Hotelling’s paper on the economics of exhaustible resources stresses the need for an inter-temporal approach to analysing the optimal rate of depletion of a finite stock of resource. He says that the static equilibrium type of economic theory is plainly inadequate for an industry in which the indefinite maintenance of a steady state is a physical impossibility. He uses the calculus of variations technique to study the optimum rates of depletion under competition and monopoly and also the rate of depletion from society’s point of view. The Hotelling rule is that the price of an exhaustible resource must grow at a rate equal to the rate of interest, both along an efficient extraction path and in a competitive resource industry equilibrium. Hotelling shows that, if the elasticity of demand is decreasing as the quantity increases, the monopolist will deplete the resource more slowly than a competitor. When the cost of extraction depends on the rate of extraction and cumulative production, he shows that the royalty does not rise at the rate of interest ‘r’ but at ‘r’ less than the percentage increase in cost caused by adding to the stock of cumulative production.
Renewable resources, such as inland fisheries, grazing land, groundwater basin, irrigation water and unfenced forests often come under common-property regimes. These resources are often jointly owned by local communities. These resources have two characteristics: exclusion is infeasible or very costly; and rivalry, in the sense that if one member uses more, less remains for others. Hence a common-property resource is potentially subject to congestion, depletion or degradation when its use is pushed beyond the limit of sustainable yield.
Hardin’s paper deals with the problem of over exploitation of grazing land with open access. As a rational individual, each herdsman seeks to maximize his gain. His additional utility from adding an animal has two components: a positive component arising from the sale of the additional animal and a negative component arising from the overgrazing created by one more animal. As the effects of overgrazing are shared by all the herdsmen, the negative utility of anyone herdsman is only a fraction of the decrease in the total utility. He argues that ‘the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another…. But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit – ‘in a world that is limited…. Freedom in a commons brings ruin to all’.
According to Hardin, the tragedy of the commons reappears in the problem of pollution, in a reverse way. Here, each individual puts something in the commons – sewage, or chemical, radioactive and heat wastes into water, noxious and dangerous fumes into the air. In doing this, the rational man finds that his share of the cost is less than the cost of purifying his wastes before releasing them. Since this is true of everyone, we are locked into a system of fouling our own nest so long as we behave only as independent rational free men. But as the air and water surrounding us cannot be readily fenced, to prevent the tragedy of the commons as a cesspool, he recommends coercive laws or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge them untreated. He argues that a finite world can support only a finite population and therefore the freedom to breed will bring ruin to all.
If the suggestion made by Hardin is to be adopted, which of the following is a possible outcome?
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- A punitive tax will be imposed on vehicle users and the tax amount will be greater than the cost that the vehicle owner would incur in order to ensure that his vehicle does not pollute.
- A punitive tax will be imposed on vehicle users and the tax amount will be such that it discourages the use of vehicles.
- Incentives will be given to vehicle owners in order to encourage them to ensure that their vehicles do not pollute.
- A pollution tax will be imposed, and it will be such that it encourages people to shun private modes of transport in favour of public transport.
- None of these
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