Avoidance cost - Revision history

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	[[File:Elektrofilter_Maria_Gugging.jpg\|360px\|thumb\|right\|Figure 1. Companies that run [[coal fired power plant]]s will spend money on pollution control devices like this [[electrostatic precipitator]]. The money to buy and run this device is an avoidance cost.<ref>Wikimedia Commons. (July 15, 2015). ''Electrostatic Precipitator'' [Online]. Available: https://upload.wikimedia.org/wikipedia/commons/c/c4/Elektrofilter_Maria_Gugging.jpg</ref>]]		[[File:Elektrofilter_Maria_Gugging.jpg\|360px\|thumb\|right\|Figure 1. Companies that run [[coal fired power plant]]s will spend money on pollution control devices like this [[electrostatic precipitator]]. The money to buy and run this device is an avoidance cost.<ref>Wikimedia Commons. (July 15, 2015). ''Electrostatic Precipitator'' [Online]. Available: https://upload.wikimedia.org/wikipedia/commons/c/c4/Elektrofilter_Maria_Gugging.jpg</ref>]]
	<onlyinclude>When producing [[goods and services]], firms take certain measures to avoid damaging or harming the environment they operate in. There are many ways in which this can be done, improving [[pollution]] control mechanisms, retrofitting inefficient equipment, increased [[compliance]] monitoring etc.~~</onlyinclude>~~ When firms invest funds into these measures, it is a [[cost]] to the firm as they have to pay for new equipment or programs. The cost of reducing the degree of [[pollution]] or [[emissions]] that can produce harmful effects is called the '''cost of avoidance''' or '''avoidance cost'''.<ref>OECD. ''Glossary of Statistical Terms''. "Avoidance Cost", [Online], Available: https://stats.oecd.org/glossary/detail.asp?ID=146. Dec. 2, 2005 [July 6, 2016].</ref>		<onlyinclude>When producing [[goods and services]], firms take certain measures to avoid damaging or harming the environment they operate in. There are many ways in which this can be done, improving [[pollution]] control mechanisms, retrofitting inefficient equipment, increased [[compliance]] monitoring etc. When firms invest funds into these measures, it is a [[cost]] to the firm as they have to pay for new equipment or programs. The cost of reducing the degree of [[pollution]] or [[emissions]] that can produce harmful effects is called the '''cost of avoidance''' or '''avoidance cost'''.</onlyinclude><ref>OECD. ''Glossary of Statistical Terms''. "Avoidance Cost", [Online], Available: https://stats.oecd.org/glossary/detail.asp?ID=146. Dec. 2, 2005 [July 6, 2016].</ref>

	One way to look at avoidance cost is the total amount paid to avoid doing damage to the environment.<ref>C. Park and M. Allaby. "Avoidance Cost." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199641666.001.0001/acref-9780199641666-e-567?rskey=JNvDK9&result=1, 2016 [Aug 31, 2016].</ref> For example, many cities have street-side recycling that is collected by a recycling company, a household pays to buy a blue bin to deposit their recycling in and then pays a monthly fee for the company to collect the bin. The monthly fee and bin cost are examples of avoidance costs as recycling reduces solid waste pollution in landfills and reduces the need for new raw materials.		One way to look at avoidance cost is the total amount paid to avoid doing damage to the environment.<ref>C. Park and M. Allaby. "Avoidance Cost." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199641666.001.0001/acref-9780199641666-e-567?rskey=JNvDK9&result=1, 2016 [Aug 31, 2016].</ref> For example, many cities have street-side recycling that is collected by a recycling company, a household pays to buy a blue bin to deposit their recycling in and then pays a monthly fee for the company to collect the bin. The monthly fee and bin cost are examples of avoidance costs as recycling reduces solid waste pollution in landfills and reduces the need for new raw materials.
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	==References==		==References==
	{{reflist}}		{{reflist}}
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Jmdonev at 04:18, 4 September 2016

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[[Category:Done 2016-04-30]]
[[File:Elektrofilter_Maria_Gugging.jpg|360px|thumb|right|Figure 1. Companies that run [[coal fired power plant]]s will spend money on pollution control devices like this [[electrostatic precipitator]]. The money to buy and run this device is an avoidance cost.<ref>Wikimedia Commons. (July 15, 2015). ''Electrostatic Precipitator'' [Online]. Available: https://upload.wikimedia.org/wikipedia/commons/c/c4/Elektrofilter_Maria_Gugging.jpg</ref>]]
<onlyinclude>When producing [[goods and services]], firms take certain measures to avoid damaging or harming the environment they operate in. There are many ways in which this can be done, improving [[pollution]] control mechanisms, retrofitting inefficient equipment, increased [[compliance]] monitoring etc.</onlyinclude> When firms invest funds into these measures, it is a [[cost]] to the firm as they have to pay for new equipment or programs. The cost of reducing the degree of [[pollution]] or [[emissions]] that can produce harmful effects is called the '''cost of avoidance''' or '''avoidance cost'''.<ref>OECD. ''Glossary of Statistical Terms''. "Avoidance Cost", [Online], Available: https://stats.oecd.org/glossary/detail.asp?ID=146. Dec. 2, 2005 [July 6, 2016].</ref>

One way to look at avoidance cost is the total amount paid to avoid doing damage to the environment.<ref>C. Park and M. Allaby. "Avoidance Cost." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199641666.001.0001/acref-9780199641666-e-567?rskey=JNvDK9&result=1, 2016 [Aug 31, 2016].</ref> For example, many cities have street-side recycling that is collected by a recycling company, a household pays to buy a blue bin to deposit their recycling in and then pays a monthly fee for the company to collect the bin. The monthly fee and bin cost are examples of avoidance costs as recycling reduces solid waste pollution in landfills and reduces the need for new raw materials.

If a [[coal fired power plant]] buys and installs a new [[electrostatic precipitator]] (figure 1) to reduce the amount of [[PM | particulate matter]] the amount of money the firm pays to buy and install the unit is considered an avoidance cost.

An avoidance cost can also be considered an [[opportunity cost]]. The money that the firm spends on new measures could be spent on other investments in the firm. The firm could put the money toward increasing production. Because the firm does not use its funds to expand production and instead uses it to buy a unit that wont increase [[profit]]s (expanded production would increase profits), there is a lost opportunity to make more money.

This makes the product more expensive, the higher [[price]] reflects the true cost of production. The cost of avoidance accounts for the [[negative externality | negative effects]] of pollution, because of this it is a socially efficient activity. The high cost reflects both the [[private cost]] of production that the firm pays and the [[social cost]] created by the pollution. One example of the social cost of pollution is the higher cost to healthcare systems from increased respiratory illnesses.

==See Also==
*[[Externality]]
*[[Opportunity cost]]

==References==
{{reflist}}