Two identical firms save money from polluting. A firm’s marginal savings from emitting an amount e are given by 10 − 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution, while one unit of emissions from firm 2 results in one unit of ambient pollution. a) Initially the policy-maker decides to institute a standard cap and trade program instead of regulating ambient pollution. If each firm is initially given three emission permits, how many permits will each firm end up with and what will be the price? b) The policy-maker realizes the differences between the firms and de- cides to institute ambient pollution permit trading. What are the transfer coefficients for each of the firms? If instead each firm is given two ambient pollution permits and trading takes place, how much will each firm end up emitting, and what will be the price?
Two identical firms save money from polluting. A firm’s marginal savings from emitting an amount e are given by 10 − 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution, while one unit of emissions from firm 2 results in one unit of ambient pollution.
a) Initially the policy-maker decides to institute a standard cap and trade program instead of regulating ambient pollution. If each firm is initially given three emission permits, how many permits will each firm end up with and what will be the price?
b) The policy-maker realizes the differences between the firms and de- cides to institute ambient pollution permit trading. What are the transfer coefficients for each of the firms? If instead each firm is given two ambient pollution permits and trading takes place, how much will each firm end up emitting, and what will be the price?
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