Civil Engineering Reference
In-Depth Information
A government can also choose to legislate about the level and quality of
information required to support a market transaction. A good example of this
type of intervention is the European requirement that an energy certificate must
be issued prior to a building being sold or rented. For instance, in the UK it is a
legal requirement that each (commercial or residential) building on the market
for sale or rent is surveyed so that the person interested in occupying it will have
some indication of how much it may cost to heat and light, and what cost-effective
improvements could be made to achieve a better rating. These energy performance
certificates (EPCs) give occupiers information on how to make their homes or offices
more energy efficient and reduce the related utility costs. Although this measure is
designed to raise awareness of energy efficiency issues, there is no legally binding
requirement to act on the recommendations in the report that accompanies the
energy certificate.
Ideally these campaigns and legislation to improve flows of information
should create a greater symmetry between the expectations of consumers and the
knowledge of suppliers, leading to a fairer, more efficient market allocation. It is
also possible for information measures to reinforce the objectives of new fiscal
incentives. For example, information on greenhouse gases can help people to
respond positively to carbon taxes that differentiate between fuel sources, and the
recommendations that come with an EPC can prompt people to take up the Green
Deal opportunities discussed in
Chapter 9
(see page 152). In this way, improved
information services should raise awareness and provide more efficient markets.
Key Points 10.2
❍
Governments can use several devices to correct market failure. These
include taxes to internalise externalities, the provision of public goods to
overcome free-rider problems, and publicity and legislation to reduce the
problems associated with imperfect flows of information.
IS GOVERNMENT INTERVENTION EFFECTIVE?
The assumption that the alternative to a failing market is a brilliant government
is wrong. Governments can fail, too. Several of the corrective measures we have
discussed have problems. These are briefly summarised in
Table 10.2
and are
examined further in this section.
Measurement Problems
Government attempts to minimise negative externalities require measurement. The
polluter pays principle
is all well and good, providing that the guilty parties are easy
to identify and that it is possible to determine a fair price for them to pay. Given
that many externalities manifest themselves in global or national environmental
issues and involve free goods, such as air, the ozone layer, habitat, flora, waterways,
and peace and quiet, their measurement (and assessment) causes endless problems.
