Command and Control Solutions
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0:00 - 0:03♪ [music] ♪
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0:09 - 0:12- [Alex] We've already looked at one
solution to the externality problem, -
0:12 - 0:15Pigouvian taxes and subsidies.
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0:15 - 0:18You might call that
the economist’s solution. -
0:18 - 0:20There's another solution,
however, which is very common -
0:20 - 0:23and quite popular to the man in the street
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0:23 - 0:26and that's command and control.
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0:26 - 0:28That's what we're going to look at now.
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0:31 - 0:34Command and control
is pretty much what it sounds like. -
0:34 - 0:39The government says,
"You cannot do this or you must do this." -
0:39 - 0:41For example, the Department of Energy
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0:41 - 0:45in an effort
to reduce the consumption of electricity, -
0:45 - 0:50recently said that it is illegal to sell
washing machines in the United States -
0:50 - 0:54if they consume more than
a certain amount of electricity. -
0:54 - 0:57The only washing machines
that it was legal to sell -
0:57 - 1:01had to consume
less than this amount of electricity. -
1:01 - 1:05So, what were the results
of this command and control program? -
1:06 - 1:08Well, here's Consumer Reports:
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1:08 - 1:11"Not so long ago
you could count on most washers -
1:11 - 1:13to get your clothes very clean.
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1:13 - 1:16Not anymore.
What happened? -
1:16 - 1:20As of January 2007,
the US Department of Energy -
1:20 - 1:25has required washers
to use 21% less energy... -
1:25 - 1:28but our tests have found
that traditional top-loaders-- -
1:28 - 1:31those with the familiar
center-post agitators-- -
1:31 - 1:34are having a tough time
wringing out those savings -
1:34 - 1:37without sacrificing cleaning ability..."
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1:38 - 1:42So the government said
you have to use 21% less energy, -
1:42 - 1:45but if things were that easy
everyone would do them. -
1:45 - 1:48There are trade-offs everywhere,
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1:48 - 1:53and by requiring the washing machines
to use less energy, -
1:53 - 1:55the trade-off
is they didn't clean so well. -
1:55 - 1:59Eventually, the technology
has gotten better and will get better, -
1:59 - 2:01and perhaps, this will be possible.
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2:02 - 2:06But one of the problems
with a command and control approach, -
2:06 - 2:11is that the government
is not always aware of the trade-offs. -
2:11 - 2:16They're not always able to choose
the least cost way of achieving a goal. -
2:17 - 2:19Let's take a closer look at this problem.
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2:20 - 2:24Command and control is rarely
an efficient way of achieving a goal. -
2:24 - 2:25Why not?
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2:25 - 2:29Well, there many ways
to achieve most goals. -
2:29 - 2:33For example, let's look at some of the ways
in which we could use less electricity. -
2:33 - 2:36We could turn down
our thermostat a little bit. -
2:36 - 2:38We could shut the lights off
when we leave a room. -
2:38 - 2:42We could turn off our computers
at night when we're not using them. -
2:42 - 2:44We could use more solar power.
-
2:44 - 2:46Firms which use a lot of electricity
-
2:46 - 2:52have many, many different ways to use less
by adjusting their production processes. -
2:53 - 2:56Now if we want to cut back
electricity consumption by, say, 10%, -
2:56 - 3:01we want to cut back
on the 10% of electricity uses -
3:01 - 3:03which are least valuable.
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3:04 - 3:09We want to reduce electricity use
in the way which is least costly. -
3:09 - 3:12The problem is,
out of all of the millions, -
3:12 - 3:16and perhaps,
billions of ways of reducing electricity, -
3:16 - 3:20is government going to choose
to command and control us -
3:20 - 3:23to reduce electricity
in the least cost way? -
3:23 - 3:24Probably not.
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3:25 - 3:29Government
simply does not have enough information -
3:29 - 3:34to order the least costly method
of reducing electricity consumption. -
3:35 - 3:37Now, let's compare our command and control
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3:37 - 3:41with an alternative method,
a tax on electricity. -
3:41 - 3:45A tax on electricity
would allow the users-- -
3:45 - 3:48would give them flexibility--
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3:48 - 3:52to find the lowest cost ways
to reduce their use of electricity. -
3:53 - 3:56If a tax of, let's say,
a few percentage points -
3:56 - 3:58would reduce electricity consumption
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3:58 - 4:02by exactly the same amount
as the command and control approach. -
4:02 - 4:03The difference is,
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4:03 - 4:08is that each one of us would look
at the higher price of electricity -
4:08 - 4:10and would choose,
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4:10 - 4:13based upon our different circumstances
and knowledge and flexibility, -
4:13 - 4:19which ways we could reduce electricity
in the least cost. -
4:19 - 4:22Some of us would turn down lights,
some of us would turn down thermostats, -
4:22 - 4:25some firms would change
the production processes a lot, -
4:25 - 4:29others would change their production
processes just a little bit. -
4:29 - 4:33Each one of us
would access our own information, -
4:33 - 4:38and in this way with much,
much, much greater flexibility, -
4:38 - 4:40we could reduce electricity consumption
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4:40 - 4:45by exactly the same amount
as the command and control approach. -
4:45 - 4:48But we would do so at much lower cost
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4:48 - 4:51because each user of electricity
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4:51 - 4:55would have the flexibility
to choose the least cost ways of doing it. -
4:56 - 4:57Think about it--
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4:57 - 4:59how many people would choose
to reduce electricity -
4:59 - 5:04by paying a lot more for a washing machine
that doesn't clean very well? -
5:04 - 5:06Probably not too many.
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5:06 - 5:11That illustrates that when government
chose to reduce electricity consumption -
5:11 - 5:14by requiring washers
to be "more efficient" -
5:14 - 5:18that actually wasn't the least-cost way
of reducing electricity. -
5:18 - 5:22That was actually a very high-cost way
of reducing electricity, -
5:22 - 5:26because it meant that we had dirty clothes
and we really didn't want that. -
5:27 - 5:32Finally, let's remember that the goal
is not actually to use less electricity. -
5:32 - 5:35The goal is to reduce pollution.
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5:35 - 5:36That's why a Pigouvian tax
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5:36 - 5:43is really one of the most efficient ways
of reducing or controlling an externality, -
5:43 - 5:48because a Pigouvian tax
is targeted on the problem-- -
5:48 - 5:50the pollution.
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5:50 - 5:52So, the closer we can get the tax
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5:52 - 5:55to the good which is actually
causing the problem-- -
5:55 - 5:58which is not electricity
but instead which is pollution-- -
5:58 - 6:02the more efficient,
the lower cost way we will have -
6:02 - 6:08of solving the externality problem,
of reducing pollution at least cost. -
6:09 - 6:12Is command and control
ever a good solution? -
6:12 - 6:17Yes, it can be precisely when
flexibility is not a virtue. -
6:17 - 6:21So, if the best approach
to the problem is well known-- -
6:21 - 6:24we don't need experimentation
and innovation and new ideas-- -
6:24 - 6:26we know the best approach,
-
6:26 - 6:30and if success
requires very strong compliance-- -
6:30 - 6:32that is when flexibility
is not a good thing-- -
6:32 - 6:35then command and control
may be the best approach. -
6:35 - 6:39So for example, let's consider
the eradication of smallpox. -
6:39 - 6:42Now, smallpox is a terrible disease.
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6:42 - 6:45It has killed more people
in the history of the world, -
6:45 - 6:48billions of people,
than, perhaps, anything else, -
6:48 - 6:50except, perhaps, old age.
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6:51 - 6:53To get rid of smallpox
we had to isolate-- -
6:53 - 6:59every single time
there was a new case of smallpox-- -
6:59 - 7:01we had to isolate the people
with the smallpox -
7:01 - 7:05and vaccinate everyone
in the surrounding community. -
7:05 - 7:08And the World Health Organization
and other organizations -
7:08 - 7:11did this time and time again.
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7:11 - 7:15Wherever a case, anywhere in the world,
of smallpox appeared, -
7:15 - 7:17we isolated and vaccinated.
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7:17 - 7:22And over time smallpox
had fewer and fewer places to hide, -
7:22 - 7:27until by 1979,
there were no places to hide left. -
7:27 - 7:31Smallpox had been eradicated
from the face of the planet. -
7:32 - 7:34That was a tremendous boon to humanity,
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7:34 - 7:37but really the only way
it could have been done -
7:37 - 7:39was command and control.
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7:39 - 7:43If we'd subsidized vaccinations,
that would not have been enough, -
7:43 - 7:48because that inevitably would have led
to small pockets of people -
7:48 - 7:52who were not immunized
and they would've continued to be carriers -
7:52 - 7:55to spread it to other people in the world.
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7:55 - 7:58So, command and control
got us very strong compliance -
7:58 - 8:01and it eradicated smallpox
from the world-- -
8:01 - 8:03and that was a tremendous thing.
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8:04 - 8:07Very briefly, let's just say
where we've been and where we're going. -
8:07 - 8:09We've been looking at solutions
to externality problems. -
8:09 - 8:14So far we've looked at two:
Pigouvian taxes and Pigouvian subsidies-- -
8:14 - 8:16Pigouvian taxes for external cost
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8:16 - 8:19and Pigouvian subsidies
when there are external benefits-- -
8:19 - 8:20and command and control.
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8:20 - 8:23The next thing we want to do
is to look at the Coase theorem -
8:23 - 8:26and private solutions
to externality problems. -
8:26 - 8:28It turns out that we've been
a little bit too pessimistic. -
8:28 - 8:31There can be some market
or private solutions -
8:31 - 8:33to externality problems
in certain circumstances, -
8:33 - 8:35and that's covered by the Coase theorem.
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8:35 - 8:39The last thing we're going to do
is look at tradable allowances. -
8:39 - 8:43These have been extremely important
in practice in reducing acid rain, -
8:43 - 8:45and may become more important
in the future -
8:45 - 8:48in dealing with global climate change.
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8:48 - 8:50Tradable allowances, as we'll see,
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8:50 - 8:53are a sort of combination
of command and control, -
8:53 - 8:55and ideas from Ronald Coase--
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8:55 - 8:56and it actually turns out
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8:56 - 9:00to be quite similar to Pigouvian taxes
and subsidies in the end as well. -
9:00 - 9:02So, that's where we're going--
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9:02 - 9:05Coase theorem and private solutions
and then tradable allowances. -
9:05 - 9:06♪ [music] ♪
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9:06 - 9:10- [Narrator] If you want to test yourself,
click "Practice Questions," -
9:10 - 9:13or, if you're ready to move on,
just click "Next Video." -
9:13 - 9:15♪ [music] ♪
- Title:
- Command and Control Solutions
- Description:
-
What happened to the cleanliness of your clothes after the U.S. Department of Energy issued new washing machine requirements? The requirements — which require washers to use 20% less energy — mean that washers actually clean clothes less than they used to. Is “command and control" an efficient way to achieve the desired outcome (which is less pollution)? Rather than a standard requirement, such as the Department of Energy issued, a tax on electricity would provide users with greater flexibility in their washing—and would prompt people to purchase machines that use energy more efficiently and keep their clothes clean.
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- Video Language:
- English
- Team:
- Marginal Revolution University
- Project:
- Micro
- Duration:
- 09:19
Cindy Hurlow edited English subtitles for Command and Control Solutions | ||
Cindy Hurlow edited English subtitles for Command and Control Solutions | ||
Cindy Hurlow edited English subtitles for Command and Control Solutions | ||
Cindy Hurlow edited English subtitles for Command and Control Solutions | ||
MRU2 edited English subtitles for Command and Control Solutions | ||
MRU2 edited English subtitles for Command and Control Solutions | ||
MRU2 edited English subtitles for Command and Control Solutions |