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Unformatted text preview: Uncertainty and Information In most cases, the MD and MAC curves are not known with certainty Can any of the policy instruments standards, emission taxes, or TDP schemes achieve the socially e cient equilibrium under uncertainty? No, we have to accept some social loss; however, we might want to use the policy that minimizes the social loss First let's compare the outcomes under each policy if the regulator knows the true MAC curve but is uncertain about the MD curve MD E is the MD curve estimated by the regulators MD T is the true MD curve which is not observed $ E * E MAC T MD T MD E t emissions Comparing the outcome under each policy standard: regulator sets standard at E , which generates a social loss of A tax: regulator sets tax to t ; rm responds by choosing emission level E , which generates a social loss of A TDP: regulator issues E permits; rm responds by choosing emission level E , which generates a social loss of A s CONCLUSION: The three policies generate identical social losses when there is only uncertainty about the MD curve Now let's compare the outcomes under each policy if the regulator knows the true MD curve but is uncertain about the MAC curve MAC E is the MAC curve estimated by the regulator MAC T is the true MAC curve which is not observed...
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