ECON 436 - Mia Ha - Problem set 4.pdf

ECON 436 - Mia Ha - Problem set 4.pdf - Mia Ha ECON 436...

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Mia Ha ECON 436 ProblemSet4_ I ) A1 Tradable permit would minimize the cost of reducing emissions but would not minimize the total cost of reducing ambient pollution because of the equi marginal condition for cost minimization . It is known that marginal costs have to be equal for all polluters and the marginal cost of abatement is equal to MB ( marginal benefit . With tradable permits , MB =P ( permit price ) That would help minimize the Cost of emissions abatement . We also know that Mcp . . =MBi Hi ( Bi : marginal productivity of abatement in reducing ambient pollution ) There is a condition that MC pi is equal for all polluters Because of this M Bi =P won't be satisfied tradable permits could help minimize the cost of reducing emissions but not the total cost of reducing ambient pollution . 131 Tradable permit will result in more environmental damage than non tradable permits because with tradable permits , polluters with low costs of emissions would sell their permits to the one with higher cost of emissions .
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