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2008_02_19_Notes

2008_02_19_Notes - UP FRONT For next time the reading for...

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UP FRONT, 2-19-08 For next time, the reading for this time will be  sufficient:  Perman et al. 165-181 (of which 165- 177 is mostly background) Outline for Today 1) Derive per-unit fee that induces efficient  amount of pollution (Pigovian fee) 2) What is the surplus-maximizing emission fee  on a monopolist producer of a good?
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Goal (like Pigou): Find the constant, per-unit pollution fee that induces the efficient amount of pollution Setup: M, pollutant emissions: Some measure of pollution emissions, depending on context. For example, it could be emissions per period of a particular pollutant from a particular source. Assumption 1: Firm can control M separately from goods output. S(M), savings from being allowed to produce emissions at rate M : For a given level of output, the polluter actually saves money by polluting more, up to some point, or else would not pollute. Because doesn’t have to spend money controlling or preventing emissions. MS(M), marginal savings from emissions at rate M: The first derivative of S(M). Approximately equal to the additional savings from being allowed to emit one more unit of pollution.
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2008_02_19_Notes - UP FRONT For next time the reading for...

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