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Homework+7

# Homework+7 - possibility of bargaining d How does your...

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Homework #7 ARE 176: Environmental Economics Due on December 2 nd 1. Consider a pollution problem involving a paper mill located on a river and a commercial salmon fishery operating on the same river. The fishery can operate at one of two locations: upstream (above the mill) or downstream (in the polluted part of the river). Pollution lowers profits for the fishery: without pollution, profits are \$300 upstream and \$500 downstream; with pollution, profits are \$200 upstream and \$100 downstream. The mill earns \$500 in profit, and the technology exists for it to build a treatment plant that completely eliminates the pollution at a cost of \$200. There are 2 possible assignments of property rights: (i) the fishery has the right to a clean river (ii) the mill has the right to pollute the river. a) Construct a payoff matrix for the 2 firms b) What is the efficient outcome (i.e.: the maximum of total joint profit)? c) What are the outcomes under the 2 different property rights regimes when there is no
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Unformatted text preview: possibility of bargaining? d) How does your answer to (c) change when bargaining is costless between the firms? 2. Two identical firms save money from polluting. Each firm has marginal savings from emitting amount e equal to 10 - 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution. Firm 2 has twice the impact on the ambient environment from the same amount of emissions. a) What are the transfer coefficients for each of the two firms? b) If firm 1 is given two emission permits and firm 2 is given four and they are allowed to trade, how many permits will each firm end up with and what will be the price? c) If instead each firm is given two ambient pollution permits and trading takes place, how much will each firm end up emitting and what will be the permit price?...
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