Questions and Answers of Environmental Economics

How would your answer to Problem 3 change if the discount rate were 5 percent? What is the most that society would spend to avoid the $$1$ million loss in 20 years with a 5 percent discount
This problem requires the use of algebra. Consider the scenario given in the previous problem with a total quantity of 60 barrels of oil. Note that in each period, MB = 100-2Q. What is the
Indicate whether the following statement is true, false, or uncertain, and illustrate your answer using a set of graphs similar to those in Figure 14.6: If the marginal cost of extraction increases
Similar to the previous exercise, consider a pollution accumulation problem with two pollutants. But now the damage functions are additively separable such that D i(S i) =d i, S i 2 while abatement
Consider again the case of one firm as in exercise 9.5 , but now assume that the firm can observe its parameter ν.(a) Determine the firm’s efficient choice of l for each value νL and νH.(b)
Identify the four components of an ecosystem. After you do this try to visualize the interactions of these four components of an ecosystem as illustrated by Figure 2. 2 in the textbook. Does this
The table below shows the use of labor and capital in the caviar industry of Beluga for two particular years. Also shown is the output of caviar and water pollution. Caviar output is shown in
How does Figure 20.2 support the following statement: "Looking at how countries of different income at any point in time supply environmental quality (the environmental Kuznets curve) does not
Some policy makers argue that it would be desirable to reward generators of hazardous wastes for appropriately disposing of their wastes. Describe a possible reward scheme. Why is it a good idea?
Describe how a tax scheme could be used to regulate automobile pollution in an urban area.
Identify whether each of the following is an example of adverse selection or moral hazard and why:a. A sawmill threatens to close down because of tight new environmental regulations.b. Smog checks
Contrast emission fees (fee per unit emissions) and marketable permits (permit to emit one unit in perpetuity) from the point of view of commitment in a society with well-defined private property
Consider the problem of automobile pollution in a large city in Central Asia. There are a million cars in the city, each emitting 10 grams of carbon monoxide (CO) per kilometer $(\mathrm{km})$
Imagine that you are a manufacturer of inflatable rubber ducks. Unfortunately, the manufacture of ducks involves damaging water pollution. You have computed that your marginal savings in millions of
You are a polluter who is faced with the question of whether to comply with the regulations on emissions or to violate them. If you comply with the regulations, your costs are $k$. If you do not
Consider the model of a voluntary environmental agreement, in which there is a firm, a regulator, and a legislature. Benefits of abatement (in terms of reduced damage from pollution) are given by
Consider the lucrative but highly competitive industry of dog toy manufacturers. The industry is dominated by Tucker's Toys, Finch's Frisbees, Morgan's Munchables, Riley's Rawhides, and Pecos' Pets.
You are in charge of designing a new hazardous waste landfill for Kiev. You are trying to decide whether it is worth spending R 1,000,000 to install a special liner that reduces the probability of a
If a potential victim can take precautions to avoid an accident (such as looking both ways before crossing a street), which liability system yields more efficient levels of precaution, strict
One of the arguments for punitive damages (damages paid to the plaintiff in excess of actual damages) is that such damage payments compensate for the fact that lawsuits are not always filed, even if
Assume you are the President of British Petroleum (BP). You note that the Exxon Valdez spill cost Exxon Corp, approximately $\$ 8$ billion. You are trying to decide on the thickness of the hull of
The local dry cleaner is concerned about the risks from its use of chemicals, which evaporate into the air and occasionally are spilled onto the ground. The cleaner is concerned about liability for
In Figure 18.3, option value is shown as positive (option price is greater than expected surplus). Using the same locus and the same probabilities of each state occurring, change the state-contingent
In the context of Figure 18.3, suppose that the risk involved with the hazardous waste landfill is objective. This may be because leaks occur often enough that the probability of a leak can be
Consider Sarah's bright idea to build a dam in the scenic Grand Canyon of the western US to provide electricity to the nearby urban area of Las Vegas. To make things simple, suppose the dam costs
How does Figure 19.2 support the following statement: "Looking at how countries of different income at any point in time supply environmental quality (the environmental Kuznets curve) does not
In Figure 19.6, the optimum $\left(E_{0}, C_{0}\right)$ is shown as the point at which the marginal rate of transformation of $E$ for $C$ equals the consumer's marginal rate of substitution of
In the early 1990 s, the chief economist of the World Bank came under a great deal of criticism for suggesting that developing countries take advantage of opportunities to import hazardous and
Does the problem of monopoly provision of a bad arise with a true Pigovian fee? Why?
In the hybrid fee-subsidy scheme described in Figure 15.7, suppose there are two additional marginal savings functions, one even higher than $\mathrm{MS}_{\mathrm{H}}$ and one lower than \(M
Consider the case of a regulator and a single polluter. Suppose the regulator knows the marginal damage from pollution but is unsure about the firm's marginal savings from emitting. The regulator
Suppose the total cost of controlling the pollution in Bangkok is given by $T C=(3+$ $r) q^{2}$ where $q$ is the amount of emissions controlled. Uncontrolled, there would be 2 units of
Suppose we have two polluters that have a hidden characteristic, $\theta$. The $\theta$ does not have to be the same for the two firms. Assume that $\theta$ can take on one of two values: 1 or
The marginal cost of reduction curve illustrated in Figure 4.5 assumes a particular approach to reducing pollution, often called end-of-the-pipe control. In other words, when we draw that
Provide one example (not given in this chapter) of each of the following:a) A defensive good or serviceb) A utility-justified good or servicec) An environmentally beneficial good or service
Suppose there are three individuals, Boris, Maggie, and William. They are using majority rule to decide among themselves whether to go hiking in the wilderness this weekend $(\mathrm{H})$, kayaking
With three alternatives (A, B, C) in a society of three people ( $1,2,3)$, find a ranking of the alternatives for each person such that majority voting, two alternatives at a time, results in A
Consider the case of instant runoff voting when three or more social choices are involved. Each voter has one vote and votes for his or her favorite option. The option with the least votes is
In Figure 4.5, the slope of the production possibility frontier (the MRT of wine for garbage disposal) is increasing (getting steeper) as garbage disposal decreases and wine increases. Does this make
In the context of Problem 4, suppose you know that CLS's MRT of wine for garbage disposal services is 2:12:1 (to obtain more bags of garbage disposal services requires a reduction of one bottle of
Suppose an environmental regulation requires all polluters to reduce emissions by $50 \%$, even though the cost of pollution control differs widely from one polluter to another. Why might this be
A very simple version of the normative model described in the text involves a simple economic growth process converging to a steady-state, where values do not change over time. ${ }^{14}$A simple
Go to the library or the Internet and, for a particular year, put together a data set of profits in agriculture in different geographical units of your state or country (e.g., counties of a U.S.
For each of the following social choice methods, which of Arrow's axioms are violated, and why:a. the Pareto criterionb. plurality-rule voting (of several choices, the one with the most votes wins)c.
Suppose we have a small inhabited island with three residents and a volcano that generates air pollution. Two people live upwind of the volcano and one person lives downwind. For $\$ 21,000$ we can
Assume a city of $1,000,000$ people, $60 \%$ of whom are willing to pay $\$ 1$ maximum (each) to clean up pollution. The rest of the population is wealthier and is willing to pay $\$ 100$
In Figure 3.2, using the Pareto criterion, which of the labeled points are socially preferred to $W$ ?Figure 3.2 Brewster's utility B w' R Anna's utility S
Suppose you have a society of $n$ identical individuals and the environment. Each individual likes his or her material possessions as well as access to parks and wilderness areas. In fact, the
Society consists of two individuals, Tucker and Finch; there are two goods, food and water sport (recreation); and there are three social choices, A, B, and C, involving different amounts of the two
The Borda Count is a common way of making a choice among more than two alternatives. As defined in the text, each member of society assigns a rank to the social alternatives $(1,2, \ldots)$, with 1
Consider the market for electricity. Suppose demand (in megawatt hours) is given by $Q=50-P$ and that the marginal private cost of generating electricity is $\$ 10$ per megawatt hour ( $P$ is
In a photocopy of Figure 4.1, find and label the following points:a. a point $D$ such that $Z$ and $Y$ are Pareto preferred to $D$ but $S$ is not.b. a point $E$ such that the arc $B Z$
Combine Figures 4.2 and 4.5 into a single figure showing how much garbage disposal and wine will be produced in an economy consisting of Ivory tower Land Services (ILS-the producer) and Brewster, our
Suppose Humphrey and Matilda live together. Humphrey currently smokes 20 packs of cigarettes per month; Matilda hates the smoke. They currently have no agreement restricting smoking. Their only joint
Consider an air basin with only two consumers, Huck and Matilda. Suppose Huck's demand for air quality is given by $q_{\mathrm{H}}-1-p$ where $p$ is Huck's marginal willingness to pay for air
Consider an airport that produces noise that decays as the distance (d), in kilometers, from the airport increases: $N(d)=1 / d^{2}$. Fritz works at the airport. Fritz's damage from noise is \(\$
When sulfur dioxide is emitted into the air it is transported over long distances and is converted to sulfuric acid. This gradually falls to the ground, either as rain or snow or simply by settling
Why is lump sum compensation for an externality non-distortionary?
Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is $p^{2}$ where $p$ is
In the manner of Figure 5.8, draw a set of indifference curves such that an individual's private provision of the public good increases as the number of people in the society increases. Explain your
Consider the problem of carbon dioxide emissions. We will abstract away from the problem slightly, assuming there are polluters and consumers in two regions, the $\mathrm{OECD}(\mathrm{O})$ and the
A dam is proposed on a stretch of wild river, a river that is currently used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years, after which its reservoir
You are the mayor of the small town of Wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $\$ 2,000,000$. You are very tempted because of the wildlife which live there
You are a hyperbolic discounter. In fact your discount rate between year $t$ and year $t+1$ is given by $0.05 /(1+t)$ for $t=0$ (today), 1 (next year), $2,3, \ldots$. This means the
An investment of $\$ 100$ today will avoid $\$ 1,000,000$ of environmental damage in 100 years.a. At a discount rate of $10 \%$, is this investment a good idea?b. At a discount rate of \(1
Consider the twin communities of Tuckerville and Matildastan. These are seaside resorts that neighbor each other and attract many tourists. Matildastan wants to raise some money to clean up the
The housing market has been very slow in York. Millie has been trying to sell her house for a million pounds, but has no takers. The mortgage market involves $5 \%$ annual interest fixed over a 30
Anna was interested in Felix's preferences regarding air quality in Santiago. She reasoned that since air pollution could be washed off with soap, Felix should view air quality $(A)$ and soap
Using the data in Problem 1, suppose at air quality level 5, Felix chooses to buy four bars of soap when they are priced at $\$ 1$ per bar. Now air quality rises to 10 . How much money would we
We can generalize Problem 1 by stating that there are three commodities Felix consumes: air quality, soap, and a basket of other goods, denoted by $x$. Anna concludes from her research that Felix's
In the Amoco Cadiz oil spill off of Northern France, fisheries, water fowl, and beaches were temporarily negatively impacted. List five types of consumers, identify the nature of goods these
Suppose housing $(H)$ and air quality $(A)$ are the only two things entering into Jose's utility and Jose's utility function is $U(H, A)=A \cdot H$. Suppose Jose's income is $\$ 10$ and the
Oxana is conducting research on the demand for cleaner air in Novosibersk. She notices that the Ministry of Housing built many identical dwellings around the city approximately the same distance from
Suppose we have an agricultural valley $100 \mathrm{~km}$ by $50 \mathrm{~km}$, with a polluting electricity power plant. The power plant causes pollution problems in a narrow strip of land
After conducting her analysis of housing prices in Novosibersk, Oxana notes that everyone in her study has exactly the same income, graduated from the same school, and listens to the same music; in
Pierre is a software engineer, working in a heavily polluted city in northern France. He does not like the pollution, but the pay is good and housing is relatively cheap. He is considering taking a
Figure 7.1 is drawn from Harrison and Rubinfeld's study of the demand for air pollution in Boston. Make a copy of Figure 7.1 and then estimate the total willingness to pay, for a household earning
An automobile maker is interested in the marginal willingness to pay by consumers for fuel economy in the cars the manufacturer produces. The automobile maker has asked you to conduct a hedonic
How would things change if land were not an input into production? In particular, how would the conclusions regarding how an increase in pollution would effect wages and land rents change?
In the travel cost analysis of the losses from beach use in Brittany due to the Amoco Cadiz oil spill, can you think of any improvements that might improve the travel cost analysis? Avoid the
Consider a variant on the defensive expenditure model presented in this chapter. Suppose air pollution is the nonmarket bad and soap is the market good that can reduce the effects of air pollution-we
Consider Arturo, an individual with utility for a composite good $(X)$ and indoor air quality $(Q): U=X Q$. Indoor air quality depends on pollution levels outside $(P)$ and defensive
Consider the demand for park visitation, Eq. (9.12b).a. We discussed (and illustrated in Figure 9.5) the effect of a change in $q$ on demand for visits, $v$. How would you expect the other
We have discussed cases in which components of demand or willingness to pay for environmental goods and bads can be observed through their interaction with market goods. For each of the following
The text suggests that substitutability can affect demand for public goods and bads in the same way that it does for private goods and bads. To be more concrete, consider trying to estimate damages
You have been commissioned to estimate the demand curve for admission to EuroLand, an amusement park in France. To do this, you spend a day surveying visitors to the park. Before doing this, you
A truck carrying insecticide has crashed, spilling hazardous chemicals into a creek, killing fish. Eventually the creek recovers with no permanent damage. You are charged with assessing the
In the Exxon Valdez legal case, several contingent valuation studies were part of estimates of liability damages owed by the oil company, Exxon. Damages were argued to include the value for all U.S.
In conducting telephone surveys, some households always refuse to participate, saying they "don't have time" or "can't be bothered." If researchers accept these inevitable nonresponses and base their
Consider being confronted with two possible scenarios while participating in a laboratory experiment:a. Someone offers to sell you a coffee mug. You have a reservation price for the mug (it is a nice
Explain how the public interest theory of regulation might come to a different conclusion regarding emission fees vs. marketable permits than the interest group theory.
The Kyoto Protocol, drafted in December 1997, calls for each-developed country to cut its emissions of carbon dioxide by the year 2012 to approximately $8 \%$ below 1990 levels. Some countries are
Suppose we have one hundred different firms emitting pollution. The Ministry of the Environment (MOE) currently regulates these firms by requiring specific pollution control equipment to be installed
A classic way of introducing pollution regulation into an urban area is the "rollback" method. First you determine the maximum tolerable level of a particular pollutant, $x_{\mathrm{s}}$. Next you
Consider a simplified version of the model of a public agency captured in Eq. (11.2). Suppose inverse demand for $Q$ is given by $D(Q)=10-Q$. Suppose the price of labor $(w)$ is 1 and
Assume an economy of two firms and two consumers. The two firms pollute. Firm one has a marginal savings function of $M S_{1}(e)=5-e$ where $e$ is the quantity of emissions from the firm. Firm
The Fireyear and Goodstone Rubber Companies are two firms located in the rubber capital of the world. These factories produce finished rubber and sell that rubber into a highly competitive world
Consider the case of a rival bad. Would efficiency require that a Pigovian fee be levied on the producer of the bad and the receipts given to the consumers as compensation? Does it matter if the bad
In Figure 12.7, the unregulated monopolist produces less than the efficient amount of steel. Does this always have to be the case when external costs are present? Can you redraw Figure 12.7 such that
The Rocky Mashed Potato Factory produces output at costs $C=Q^{2}$ (marginal costs $2 Q$ ), where $Q$ is the quantity of mashed potatoes produced, in tons. In addition, 2 units of emissions are

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