Suppose marginal damages due to industrial chlorine emissions e into a river system are defined by the equation MD = e. Assume that marginal abatement costs also are linear in the emission level: 1200 – e/2 for e<2400 MC = otherwise (a) Calculate the pollution level in the absence of any regulation. (b) Calculate the optimal level of pollution assuming it can be obtained costlessly. Now suppose there are transactions costs of altering pollution output equal to T = 500,000. Does the assignment of property rights now matter for efficiency? What is the optimal level of pollution taking account of the transactions costs? (c) Now suppose the marginal damage of chlorine release is e/4 instead of e. If the transactions and negotiation costs are as in (iii), what now would be the optimal level of pollution taking account of the transactions and negotiation costs? (d)

Suppose marginal damages due to industrial chlorine emissions e into a river system are defined by the equation MD = e. Assume that marginal abatement costs also are linear in the emission level: 1200 – e/2 for e<2400 MC = otherwise (a) Calculate the pollution level in the absence of any regulation. (b) Calculate the optimal level of pollution assuming it can be obtained costlessly. Now suppose there are transactions costs of altering pollution output equal to T = 500,000. Does the assignment of property rights now matter for efficiency? What is the optimal level of pollution taking account of the transactions costs? (c) Now suppose the marginal damage of chlorine release is e/4 instead of e. If the transactions and negotiation costs are as in (iii), what now would be the optimal level of pollution taking account of the transactions and negotiation costs? (d)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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