Question

In Mark A. Cohen, "The Costs and Benefits of Oil Spill Prevention and Enforcement," 7ournal of Environmental Economics and Management \(\mathrm{Vol} .13\) (June \(1986),\) an attempt was made to quantify the marginal benefits and marginal costs of U.S. 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 \(\$ 7.50,\) while the marginal per-gallon cost is \(\$ 5.50 .\) 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 enforcement activity should be increased, as the marginal benefits are greater than the marginal costs.

Step-by-step solution

Identify the Marginal Benefit and Marginal Cost per gallon

Given: Marginal benefit per gallon = \(7.50; Marginal cost per-gallon = \)5.50

Compare Marginal Benefit and Marginal Cost

To decide whether to increase, decrease, or maintain the current level of enforcement, we need to compare the marginal benefit (MB) with the marginal cost (MC). There are three scenarios: - If MB > MC: It indicates that the benefits of increasing enforcement activity outweigh the costs. In this case, it's recommended to increase the enforcement effort. - If MB < MC: It suggests that the costs of increasing enforcement activity are greater than the benefits. In this case, it's advised to decrease the enforcement effort. - If MB = MC: It shows that the benefits of increasing enforcement activity are equal to the costs. In this situation, it's reasonable to maintain the current level of enforcement effort.

Make a recommendation based on the comparison

In this exercise, we have MB = \(7.50 and MC = \)5.50, so MB > MC. Based on the comparison, it's recommended to increase the enforcement activity, as the marginal benefits are greater than the marginal costs. This will lead to an overall increase in the net benefits derived from oil spill prevention and enforcement.

Key concepts

Environmental Economics

Environmental economics is a subfield of economics concerned with the relationship between the economy and the environment. Its primary aim is to understand how economic activities impact natural resources and the ecosystem, and to devise policies for the sustainable management of these resources.

Applying this discipline to issues like oil spill prevention involves evaluating the benefits of a clean environment against the costs of implementing measures to protect it. Environmental economists use tools like the marginal cost and benefit analysis to quantify these trade-offs, providing valuable insights into how resources should be allocated to prevent environmental damage.

Oil Spill Prevention

Oil spill prevention is critical for protecting water resources and marine life. The strategies involve a combination of technological solutions, regulatory frameworks, and monitoring systems designed to avoid spills from occurring. Prevention measures can include using double-hulled tankers, regular maintenance of oil rigs, and stringent safety protocols.

The assessment of these measures often relies on determining the marginal benefits, such as reduced pollution and preserved ecosystems, against the marginal costs, including the expenses for technology and enforcement. Effective prevention not only saves the environment but can also be economically beneficial when the cost of prevention is less than the potential damage from spills.

U.S. Coast Guard Enforcement

The United States Coast Guard plays a vital role in enforcing maritime laws and regulations aimed at preventing oil spills. Enforcement involves routine inspections, monitoring of vessel movements, and ensuring compliance with safety standards.

The effectiveness of the Coast Guard's enforcement can be measured through marginal analysis, where the marginal benefit is the reduction in oil spills and the associated environmental damage, while the marginal cost includes resources expended on patrol and enforcement operations. Optimal enforcement levels are achieved when the marginal benefits of enforcement outweigh the marginal costs.

Cost-Benefit Analysis

Cost-benefit analysis (CBA) is a systematic approach used for evaluating the economic worthiness of a project or decision. In the context of environmental economics, CBA involves calculating and comparing the benefits and costs associated with a particular action, such as the enforcement against oil spills.

As illustrated in the given exercise, when the marginal benefit exceeds the marginal cost, it indicates a net gain from increasing the action being taken. Therefore, according to the results of the CBA, it would be economically rational for the U.S. Coast Guard to increase their enforcement efforts to prevent oil spills, as it would lead to greater environmental and economic benefits.