Section_Notes_3_jenny - Section Notes 3 Outline...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Section Notes 3 Outline Announcements Coase Theorem Shadow Pricing Hetereogeneity and Tradable Permits Taxes, Standards and Heterogeneity Weitzman Model 1 Coase Theorem 3 Assumptions: Property Rights: Information: Transaction Costs: Result: Pareto Optimality, Distribution depends on a initial allocation rights political economy The Coase Theorem Applied to Pollution Rights Case 1: The chemical plant has the right to pollute (swimmers can pay chemical plant for reduction in pollution) 1 Initial Outcome After Negotiations Pollution 0A 0N Chemical plant surplus 0EA 0ECN+NCFA * Swimmer welfare CFM Social surplus 0EA 0ECN+NCMA *swimmers pay AF for each unit of pollution reduced (NCFA) Case 2: The swimmer have the right to clean water (chemical plant can compensate swimmers for pollution) Initial Outcome After Negotiations Pollution 0N Chemical plant surplus ETC Swimmer welfare 0MA NCMA+0TCN * Social surplus 0MA 0ECN+NCMA *chemical plant pays 0T for each unit of pollution allowed (0TCN) What assumptions of the Coase Theorem might fail easily? Should policy-makers focus on reducing trans- action costs or de ning property rights? 2 Shadow Prices What is a shadow price? Lecture notes say: bene ts lost when tightening a constraint . We can think of a shadow price as the value of being allowed to produce more or less pollution. We went through the graphical example in class, so now we will review a numerical example on calculating shadow values, or optimal tax levels with a pollution target 1. Firms are producing where MC=MB(MPB). Suppose that MB = 40-4Q and MC =8 . What is1....
View Full Document

This note was uploaded on 09/24/2011 for the course ECON C125 taught by Professor Zelberman during the Spring '09 term at University of California, Berkeley.

Page1 / 5

Section_Notes_3_jenny - Section Notes 3 Outline...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online