Econ 131 lecture 9

Econ 131 lecture 9 - Schedule Today Finish theory/optimal...

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Schedule To d ay Finish theory/optimal policies (Chapter 9) Start climate change (not on midterm) Return quizzes Next week Tuesday: In-class review by TA’s Thursday: Midterm Review from Last Class Equimarginal principal The most efFcient way to achieve a set amount of abatement involves equalizing marginal costs across ±rms, sectors, countries, etc. Any other distribution of abatement will have higher total cost With a tax, all ±rms set their MC equal to the tax so ef±ciency is reached With direct regulation some ±rms may be required to move farther out their MC curve than others, raising cost
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Two electricity generating plants, same baseline emissions of 100, different MC of abatement curves A has easy access to low-sulfur coal (so it can cheaply switch away from more polluting coal) B doesn’t Suppose we want to limit acid rain and need to cut emissions by half. Consider: Direct regulation -- uniform standard: Each Frm must cut their emissions in half Market-based instrument -- each Frm faces the same market incentive at the margin Example in Practice Policy Implications ±irms (or sectors) are almost always heterogeneous in abatement costs Policy that requires equal reduction will therefore be more expensive than a price-based rule: it requires too much effort from Frms with high MC and too little from Frms with low MC
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This note was uploaded on 01/30/2012 for the course ECON 131 taught by Professor Groves during the Spring '09 term at UCSD.

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Econ 131 lecture 9 - Schedule Today Finish theory/optimal...

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