Question1 Consider an industry consisting of two firms (j = 1&2) that produce a consumer good and pollution. The abatement cost and damage functions are Cj (ej) = [(aj - - bjej)²/2b; \ej ≤ aj/bj, aj,b; > 0 0 otherwise D(E) = d 2 E²d> E² d>0 1. Determine the firms' marginal abatement cost curves. 2. Determine the socially optimal allocation and level of pollution. Now let al 10, 61 = 1, a2 = 12, b2 = 0.5, d 1. Suppose the environmental authority aims to establish an aggregate emission level of E = 16 units. 3. What is the unregulated market emission level for each firm? 4. What is each firm's abatement cost and the aggregate abatement cost if the government requires e; 8 for each firm? 5. What is the tax rate the government should charge in order to achieve the target of E = 16 units? What is each firm's abatement cost and the aggregate abatement cost if the government charges this tax rate? What is each firm's tax bill? 6. Suppose instead the government freely issues tradable emission permits, with each firm receiving an initial endowment of 8 units. If the permit market is competitive, what is the market price for permits? How many does each firm buy or sell? What is each firm's total cost (abatement plus net permit expenses)? 7. Suppose instead the government auctions off 16 permits. What is the competitive auction price? What is each firm's total cost (abatement plus permit expenses)? What are government revenues? 8. What would be the per unit subsidy needed to achieve a total of E = 16 units? What baseline emission level, below which the firm receive a subsidy, should the government set? What is each firm's total cost (abatement minus subsidy receipts)? What is the government expenditure? 1 Add class comment... 9. Construct a table summarizing the following for each policy option: total abatement cost, total industry cost, and government revenue (expense).
Question1 Consider an industry consisting of two firms (j = 1&2) that produce a consumer good and pollution. The abatement cost and damage functions are Cj (ej) = [(aj - - bjej)²/2b; \ej ≤ aj/bj, aj,b; > 0 0 otherwise D(E) = d 2 E²d> E² d>0 1. Determine the firms' marginal abatement cost curves. 2. Determine the socially optimal allocation and level of pollution. Now let al 10, 61 = 1, a2 = 12, b2 = 0.5, d 1. Suppose the environmental authority aims to establish an aggregate emission level of E = 16 units. 3. What is the unregulated market emission level for each firm? 4. What is each firm's abatement cost and the aggregate abatement cost if the government requires e; 8 for each firm? 5. What is the tax rate the government should charge in order to achieve the target of E = 16 units? What is each firm's abatement cost and the aggregate abatement cost if the government charges this tax rate? What is each firm's tax bill? 6. Suppose instead the government freely issues tradable emission permits, with each firm receiving an initial endowment of 8 units. If the permit market is competitive, what is the market price for permits? How many does each firm buy or sell? What is each firm's total cost (abatement plus net permit expenses)? 7. Suppose instead the government auctions off 16 permits. What is the competitive auction price? What is each firm's total cost (abatement plus permit expenses)? What are government revenues? 8. What would be the per unit subsidy needed to achieve a total of E = 16 units? What baseline emission level, below which the firm receive a subsidy, should the government set? What is each firm's total cost (abatement minus subsidy receipts)? What is the government expenditure? 1 Add class comment... 9. Construct a table summarizing the following for each policy option: total abatement cost, total industry cost, and government revenue (expense).
Chapter3: Economic Decision Makers
Section: Chapter Questions
Problem 3.12P
Related questions
Question
My question is related to environmental economics, specifically from the textbook of Phaneuf & Requate, Chapter 3- Introduction to the Theory of Environmental Policy. This deals wit the theory of marginal abatement costs for firms and marginal damages from emissions for households, and the role of regulator in reaching equilibrium level of emissions.
Transcribed Image Text:Question1
Consider an industry consisting of two firms (j = 1&2) that produce a consumer good and pollution.
The abatement cost and damage functions are
Cj (ej) =
[(aj -
- bjej)²/2b; \ej ≤ aj/bj, aj,b; > 0
0 otherwise
D(E)
=
d
2
E²d>
E² d>0
1. Determine the firms' marginal abatement cost curves.
2. Determine the socially optimal allocation and level of pollution.
Now let al 10, 61 = 1, a2 = 12, b2 =
0.5, d 1. Suppose the environmental authority aims to
establish an aggregate emission level of E = 16 units.
3. What is the unregulated market emission level for each firm?
4. What is each firm's abatement cost and the aggregate abatement cost if the government requires
e; 8 for each firm?
5. What is the tax rate the government should charge in order to achieve the target of E = 16
units? What is each firm's abatement cost and the aggregate abatement cost if the government
charges this tax rate? What is each firm's tax bill?
6. Suppose instead the government freely issues tradable emission permits, with each firm receiving
an initial endowment of 8 units. If the permit market is competitive, what is the market price
for permits? How many does each firm buy or sell? What is each firm's total cost (abatement
plus net permit expenses)?
7. Suppose instead the government auctions off 16 permits. What is the competitive auction
price? What is each firm's total cost (abatement plus permit expenses)? What are government
revenues?
8. What would be the per unit subsidy needed to achieve a total of E = 16 units? What baseline
emission level, below which the firm receive a subsidy, should the government set? What is each
firm's total cost (abatement minus subsidy receipts)? What is the government expenditure?
1
Add class comment...
9. Construct a table summarizing the following for each policy option: total abatement cost, total
industry cost, and government revenue (expense).
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