Suppose that the government decides to issue tradable permits for a certain

Suppose that the government decides to issue tradable

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3. Suppose that the government decides to issue tradable permits for acertain form of pollution.a) Does it matter for economic efficiency whether the governmentdistributes or auctions the permits?
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b) If the government chooses to distribute the permits, does the allocationof permits among firms matter for efficiency?4. A builder proposes a skyscraper that would block sunlight to theneighboring houses. The building would have net benefits to the builder of$100,000. The neighbors, who use solar heating, would face reducedproperty values and increased heating costs, totaling $80,000.a) The law clearly states that the neighbors have the right to solar access.Is a welfare-improving exchange possible? What would the outcome be ifthis exchange occurred? (Hint: First write down the welfare of each group ifthe skyscraper was not built, and the welfare of each group if theskypscraper was built.)b) Because there is a large number of neighbors, hiring an attorney tonegotiate with all of them will be expensive: $25,000 total for theneighbors. Is a welfare-improving exchange possible?c) Compare the scenarios and outcomes in parts (a) and (b). Explain.
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  • Fall '12
  • Berk
  • Supply And Demand, Externality, External Costs, social marginal cost, city planner

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