Question

In Mark A. Cohen, "The costs and Benefits of Oil Spill Prevention and Enforcement," 7ournal of Environmental Economics and Management Vol. 13 (June $1986)$, an attempt was made to quantify the marginal benefits and marginal costs of US Coast Guard enforcement activity in the area of oil spill prevention. His analysis suggests (p. 185 ) that the marginal per-gallon benefit from the current level of enforcement activity is $\mathrm{\$}7.50,$ while the marginal per-gallon cost is $\mathrm{\$}5.50.$ Assuming these numbers are correct, would you recommend that the Coast Guard increase, decrease, or hold at the current level their enforcement activity? Why?

Short answer

Answer: The Coast Guard should increase their enforcement activity in the area of oil spill prevention because the marginal per-gallon benefit ($7.50)isgreaterthanthemarginalper-galloncost($5.50). Increasing the enforcement activity would result in greater overall benefits to society in terms of preventing oil spills and their associated environmental and economic damages.

Step-by-step solution

Understand the problem

First, let's make sure we understand the problem. We are given the marginal per-gallon benefit and marginal per-gallon cost of oil spill prevention enforcement activity. The goal is to provide a recommendation to the Coast Guard on whether they should increase, decrease, or hold at the current level their enforcement activity based on these figures.

Compare the marginal benefit and marginal cost

Now, we need to compare the marginal per-gallon benefit and marginal per-gallon cost. We are given the following values: - Marginal per-gallon benefit: $7.50 - Marginal per-gallon cost: $5.50 Since the marginal per-gallon benefit is greater than the marginal per-gallon cost, it means that the current level of enforcement activity is providing a net gain in terms of benefit.

Make a recommendation

Based on the comparison between the marginal per-gallon benefit and marginal per-gallon cost, we can make the following recommendation: The Coast Guard should increase their enforcement activity in the area of oil spill prevention. This is because the marginal per-gallon benefit of the current level of enforcement activity ($7.50)isgreaterthanthemarginalper-galloncost($5.50). Increasing the enforcement activity would result in greater overall benefits to society in terms of preventing oil spills and their associated environmental and economic damages.