Imagine the government of California has proposed a new tax on vehicles based on the amount of emissions they produce in a year. In 2019, there will be 20 tons of emissions produced. The governor’s office has run the calculations and found that the socially optimal level is 14 tons and the marginal damage from each unit of pollution is $150. Imagine there are two types of drivers in California: commuters and non-commuters. Imagine that the marginal cost of reducing pollution for commuters is MCA_C=150Q and the marginal cost of reducing pollution for non-commuters is MCA_N=30Q. Each type initially created ten tons of pollution each. Their total cost of reductions is equal to TCA_C=75Q^2 and TCA_N=15Q^2. How much would each type choose to reduce under the tax? Imagine the governor instead suggested forcing all drivers to reduce their emissions by 30% from their 2019 levels. How would the costs of reduction here compare to the taxation case (please provide actual numbers)? Do you think such a shift is a good idea Why or why not? Are there conditions under which your answer would change? Imagine the governor now wants to do a cap-and-trade program instead of a Pigouvian tax? Assume we know the true marginal damage level and socially optimal quantity. Do you think this will affect the overall success of the program (judged as getting as close to the socially optimal level of pollution as cheaply as possible)? Imagine the California EPA does a new calculation and finds that they initially under-estimated the marginal damages produced by vehicle emissions. They now believe it would be socially optimal to reduce emissions by 12 tons. Under the governor’s new cap-and-trade proposal how much would you expect each group of drivers to reduce. What would the equilibrium permit price be?
Imagine the government of California has proposed a new tax on vehicles based on the amount of emissions they produce in a year. In 2019, there will be 20 tons of emissions produced. The governor’s office has run the calculations and found that the socially optimal level is 14 tons and the marginal damage from each unit of pollution is $150.
Imagine there are two types of drivers in California: commuters and non-commuters. Imagine that the marginal cost of reducing pollution for commuters is MCA_C=150Q and the marginal cost of reducing pollution for non-commuters is MCA_N=30Q. Each type initially created ten tons of pollution each. Their total cost of reductions is equal to TCA_C=75Q^2 and TCA_N=15Q^2. How much would each type choose to reduce under the tax?
Imagine the governor instead suggested forcing all drivers to reduce their emissions by 30% from their 2019 levels. How would the costs of reduction here compare to the
Imagine the governor now wants to do a cap-and-trade program instead of a Pigouvian tax? Assume we know the true marginal damage level and socially optimal quantity. Do you think this will affect the overall success of the program (judged as getting as close to the socially optimal level of pollution as cheaply as possible)?
Imagine the California EPA does a new calculation and finds that they initially under-estimated the marginal damages produced by vehicle emissions. They now believe it would be socially optimal to reduce emissions by 12 tons. Under the governor’s new cap-and-trade proposal how much would you expect each group of drivers to reduce. What would the
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