Comparing this outcome with the benchmark, we can see who gains and who loses from the
imposition of the tax to internalise the externality.
Consumers lose B+G+K. B+G is effectively transferred to government in the form of
tax revenue. K is effectively tr
Explain the Asset Allocation Puzzle identified by Gourinchas and Jeanne
(2007). What are its possible causes and consequences? Is the Asset
Allocation Puzzle simply a restatement of the Lucas Paradox?
Word count: 1998
It may seem unfair or unjust that the polluting producer effectively gains rent from being in
a polluting industry. If there is merit to the polluter pays principle then polluting producers
should purchase the right to pollute, or at least an allowance, f
In order to measure emissions, one needs to know the baseline (technology effects
emmissions, decreases however firms overstate this effect to gain more credits.)
Basically what the emissions level would have been.
This is the problem of add
The Kyoto Protocol to the United Nations Framework Convention on Climate
Change (UNFCCC) is an international treaty that sets binding obligations on industrialized
countries to reduce emissions of greenhouse gases.
Non-Annex 1 countries: H
International Environmnet Agreements (IEAs):
Key characteristics of IEAS:
1) Participation: In an ideal or first-best agreement all the countries involved in an
externality problem would participate. Being involved in an externality problem covers both
How to address the problem of getting all countries to comply:
Weaken the abatement targets assigned to key countries to incentivise participation
Countries which gain more on average compensate those countries which gain less
Dynamics of Marginal Benefit of Abatement (MB)
Dynamics of Marginal Cost of Abatement (MC)
Technical progress in abatement technologies is likely to make MC shift down over time.
Problems concerned with grandfathering:
A form of dynamic inefficiency . If grandfathering is based on, say, average emissions
of a business over the last three years, then the expectation that permits will be issued on
this basis creates an incentive for
First: the tax generates revenue for the government which, at least in principle, they could
use for some other socially useful purpose. The revenue might, for example, be used:
to replace some other inefficient source of raising government revenue;
Social welfare function assumptions:
Additively seperable (simply depends on consumption T, not on past or future
Uitility just depnds on consumption.
Single good or fixed basket.
Constaant population (single individual or fixed distribution
Weitzman demonstrated that when marginal costs of abatement are uncertain:
Using a price instrument (i.e. an emissions tax or charge) is more efficient than a
quantity instrument (i.e. tradable permits), when the marginal benefit
THE GLOBAL ECONOMICS OF CLIMATE CHANGE
Climate change affects:
Anthropogenic human induced climate change, global problem, rich industrialized
countries have high emissions (high concentration of ghgs).
Impacts vary geographically.
Long time frame.
The least cost combination between for example country or firms A and B is when marginal
costs are equalized.
Governmnets or central planners are unlikely to have information about abatement costs at
firm level, unlikely to attach perform
The transfer of permits is referred to as a trade. In effect, the buyer is paying a
charge for polluting, while the seller is being rewarded for having reduced emissions.
Thus, in theory, those who can reduce emissions most cheaply will do so, achieving
Running head: SYSTEM ANALYSIS AND DESIGN
System Analysis and Design
System Analysis and Design
SYSTEM ANALYSIS AND DESIGN
In their book, Advanced system analysis and Design, Glover and Sharma define system