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Unformatted text preview: UP FRONT, 2-28-08 Problem set 3 due Tuesday. Reading for next time: Still Perman et al. pp. 202-224. If you don’t follow, raise your hand. Another book available. Outline for Today 1) Cost effectiveness 2) Lagrange multiplier method (multi-variable optimization subject to equality constraint) 3) Equimarginal principle (required for cost effectiveness) One can maximize net benefits of pollution or net benefits of abatement, for same result If maximizing net benefits of pollution M, B(M) is the surplus gain from being allowed to pollute more. E.g. increased PS from reduced production costs and possibly increased PS and CS from increased goods output. • For clarity, we often assume goods output is constant, so B(M) is just cost savings from reduced emission control costs. In this case we call it S(M). C(M) (or “D(M)”) is the damages from pollution If maximizing net benefits of abatement Z = M hat- M, B(Z) is the benefits of abatement in the form of reduced damages from pollution. C(Z) is the loss in PS and possibly CS from having to change production to curtail pollution....
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This note was uploaded on 02/19/2009 for the course AEM 4510 taught by Professor Shawhan,d. during the Spring '08 term at Cornell.
- Spring '08