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Let us now turn to the decisions that the governments would make if they were inde- pendently choosing whether to impose a tax or not. In the US, firms using the clean technology emit a total of 0 tonnes of CO2 emissions, while firms using the polluting technology emit a total of 900 tonnes of CO2 emissions. In Fiji, firms using the clean technology emit 0 tonnes of CO2 emissions, while firms using the polluting technology emit 100 tonnes of CO2 emissions. The governments of each country care about three things: (1) how much net profits their representative firm makes, (2) how many total CO2 emissions are emitted in the world, and (3) how much tax income they receive. In particular, let πi (qi) denote the profits of the representative firm in country i when it chooses technology qi and E(qu, qF) = Eu (qu)+EF (qF) the total CO2 emissions in the world. Then each country's payoffs are given by: - Uu (qu, qF, E) = 1000 × [TU (qu) — TU] — E(qu, qF) + 1000 × TU UF (qu,qF, E) = πF (qF) — TF – 100 × E(qu,qF) + TF Suppose that each country can choose between a lump-sum tax of T₁ = 2 and no tax Ti = 0. Countries can only impose taxes on their own firms, not on the firms of the other countries. No-Tax Tax (10000,-99989) (10100,-89990) (9900, -9989) (10000,10) 1. Explain carefully the intuition behind this result. What can we learn from this model about the difficulty of reducing CO2 emissions globally? Is there an outcome that both countries would prefer? Is there an outcome that one country would prefer? USA/Fiji No-Tax Tax

Let us now turn to the decisions that the governments would make if they were inde- pendently choosing whether to impose a tax or not. In the US, firms using the clean technology emit a total of 0 tonnes of CO2 emissions, while firms using the polluting technology emit a total of 900 tonnes of CO2 emissions. In Fiji, firms using the clean technology emit 0 tonnes of CO2 emissions, while firms using the polluting technology emit 100 tonnes of CO2 emissions. The governments of each country care about three things: (1) how much net profits their representative firm makes, (2) how many total CO2 emissions are emitted in the world, and (3) how much tax income they receive. In particular, let πi (qi) denote the profits of the representative firm in country i when it chooses technology qi and E(qu, qF) = Eu (qu)+EF (qF) the total CO2 emissions in the world. Then each country's payoffs are given by: - Uu (qu, qF, E) = 1000 × [TU (qu) — TU] — E(qu, qF) + 1000 × TU UF (qu,qF, E) = πF (qF) — TF – 100 × E(qu,qF) + TF Suppose that each country can choose between a lump-sum tax of T₁ = 2 and no tax Ti = 0. Countries can only impose taxes on their own firms, not on the firms of the other countries. No-Tax Tax (10000,-99989) (10100,-89990) (9900, -9989) (10000,10) 1. Explain carefully the intuition behind this result. What can we learn from this model about the difficulty of reducing CO2 emissions globally? Is there an outcome that both countries would prefer? Is there an outcome that one country would prefer? USA/Fiji No-Tax Tax

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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Let us now turn to the decisions that the governments would make if they were inde- pendently choosing whether to impose a tax or not. In the US, firms using the clean technology emit a total of 0 tonnes of CO2 emissions, while firms using the polluting technology emit a total of 900 tonnes of CO2 emissions. In Fiji, firms using the clean technology emit 0 tonnes of CO2 emissions, while firms using the polluting technology emit 100 tonnes of CO2 emissions. The governments of each country care about three things: (1) how much net profits their representative firm makes, (2) how many total CO2 emissions are emitted in the world, and (3) how much tax income they receive. In particular, let πi (qi) denote the profits of the representative firm in country i when it chooses technology qi and E(qu, qF) = Eu (qu)+EF (qF) the total CO2 emissions in the world. Then each country's payoffs are given by: - Uu (qu, qF, E) = 1000 × [TU (qu) — TU] — E(qu, qF) + 1000 × TU UF (qu,qF, E) = πF (qF) — TF – 100 × E(qu,qF) + TF Suppose that each country can choose between a lump-sum tax of T₁ = 2 and no tax Ti = 0. Countries can only impose taxes on their own firms, not on the firms of the other countries. No-Tax Tax (10000,-99989) (10100,-89990) (9900, -9989) (10000,10) 1. Explain carefully the intuition behind this result. What can we learn from this model about the difficulty of reducing CO2 emissions globally? Is there an outcome that both countries would prefer? Is there an outcome that one country would prefer? USA/Fiji No-Tax Tax
Transcribed Image Text:Let us now turn to the decisions that the governments would make if they were inde- pendently choosing whether to impose a tax or not. In the US, firms using the clean technology emit a total of 0 tonnes of CO2 emissions, while firms using the polluting technology emit a total of 900 tonnes of CO2 emissions. In Fiji, firms using the clean technology emit 0 tonnes of CO2 emissions, while firms using the polluting technology emit 100 tonnes of CO2 emissions. The governments of each country care about three things: (1) how much net profits their representative firm makes, (2) how many total CO2 emissions are emitted in the world, and (3) how much tax income they receive. In particular, let πi (qi) denote the profits of the representative firm in country i when it chooses technology qi and E(qu, qF) = Eu (qu)+EF (qF) the total CO2 emissions in the world. Then each country's payoffs are given by: - Uu (qu, qF, E) = 1000 × [TU (qu) — TU] — E(qu, qF) + 1000 × TU UF (qu,qF, E) = πF (qF) — TF – 100 × E(qu,qF) + TF Suppose that each country can choose between a lump-sum tax of T₁ = 2 and no tax Ti = 0. Countries can only impose taxes on their own firms, not on the firms of the other countries. No-Tax Tax (10000,-99989) (10100,-89990) (9900, -9989) (10000,10) 1. Explain carefully the intuition behind this result. What can we learn from this model about the difficulty of reducing CO2 emissions globally? Is there an outcome that both countries would prefer? Is there an outcome that one country would prefer? USA/Fiji No-Tax Tax
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