Questions and Answers of Environmental Economics

Under Public Law 480, the United States sells surplus grains to developing countries, which pay in local currencies. Since the United States rarely spends all of these currencies, much of this grain
“Food stamp programs serve only to drive food prices higher, not increase the quantity of food available to the poor.” What would the elasticity of supply have to be for this statement to be
A recent news article suggested that absentee landlords may be one source of soil erosion problems. (Assume for the purposes of this problem that absentee landlords rent the land to the farmer for a
Because export taxes on food commodities are frequently seen as falling on foreign consumers, they tend to be favored as revenue sources by many countries. What assumptions are necessary for export
If a natural disaster, such as the 2010 drought in Russia, hits food production, use supply and demand analysis to figure out how this affects consumers and producers. Does everyone lose or are some
Suppose the United States imposes a tariff on imported sugar. What are the consequences of this on consumers, domestic and foreign producers, and land use?
Should U.S. national forests become “privatized” (sold to private owners)? Why or why not?
In his book, The Federal Land Revisited, Marion Clawson proposed what he called the “pullback concept”: Under the pullback concept any person or group could apply, under applicable law, for a
Suppose there are two identical forest plots except that one will be harvested and left as is while the second will be cleared after the harvest and turned into a housing development. In terms of
In Table 12. 1, when r = 0. 02, the present value of the cost rises for 68 years and then subsequently declines. Why?Table 12. 1 TABLE 12.1 Economic Harvesting Decision: Douglas Fir 10 20 30 40 50
As our energy structure transitions toward renewable fuels, forest-based biomass fuels benefit from this transition. What are the likely effects of this transition on consumers, producers, and the
This chapter contains two views of the future. Since the validity of these views cannot be completely tested until the time period covered by the forecast has passed (so that predictions can be
Positive and negative feedback loops lie at the core of systematic thinking about the future. As you examine the key forces shaping the future, what examples of positive and negative feedback loops
Which point of view in Debate 1.2 do you find most compelling? Why? What logic or evidence do you find most supportive of that position?Debate 1. 2 DEBATE 1.2 What Does the Future Hold? Is the
In a well-known legal case, Miller v. Schoene (287 U.S. 272), a classic conflict of property rights was featured. Red cedar trees, used only for ornamental purposes, carried a disease that could
In primitive societies, the entitlements to use land were frequently possessory rights rather than ownership rights. Those on the land could use it as they wished, but they could not transfer it to
Suppose the state is trying to decide how many miles of a very scenic river it should preserve. There are 100 people in the community, each of whom has an identical inverse demand function given by P
Suppose the market demand function (expressed in dollars) for a normal product is P = 80 – q, and the marginal cost (in dollars) of producing it is MC = 1q, where P is the price of the product and
Suppose you were asked to comment on a proposed policy to control oil spills. Since the average cost of an oil spill has been computed as $X, the proposed policy would require any firm responsible
Label each of the following propositions as descriptive or normative and defend your choice:a. Energy efficiency programs would create jobs.b. Money spent on protecting endangered species is
Identify whether each of the following resource categories is a public good, a common-pool resource, or neither and defend your answer:a. A pod of whales in the ocean to whale hunters.b. A pod of
Over the last several decades in product liability law, there has been a movement in the court system from caveat emptor (“buyer beware”) to caveat venditor (“seller beware”). The liability
How should the public sector handle a toxic gas, such as radon, that occurs naturally and seeps into some houses through the basement or the water supply? Is this a case of an externality? Does the
Would the export of hazardous waste to developing countries be efficient? Sometimes? Always? Never? Would it be moral? Sometimes? Always? Never? Make clear the specific reasons for your judgments.
Two legal doctrines used to control contamination from toxic substances are negligence and strict liability. Imagine a situation in which a toxic substance risk can be reduced only by some
“With a global economy, the only way to achieve cost-effective control of greenhouse gases is to assure that every country imposes the same universal set of emissions standards.” Discuss.
Consider a possible mechanism for controlling population. According to an idea first put forth by Kenneth Boulding (1964) each individual would be given the right to produce one (and only one!)
Is informing the consumer about any toxic substances used in the manufacture of a product sufficient to produce an efficient level of toxic substance use for that product? Why or why not?
“Every molecule of a nonrenewable resource used today precludes its use by future generations. Therefore, the only morally defensible policy for any generation is to use only renewable
“Future generations can cast neither votes in current elections nor dollars in current market decisions. Therefore, it should not come as a surprise to anyone that the interests in future
“Trade simply represents economic imperialism where one country exploits another. The environment is the inevitable victim.” Discuss.
Some education is funded by property taxes, whereas other forms of education are funded by charging tuition. Suppose that within a community, more money is needed for education. Assuming that they
Fertility rates vary widely among various ethnic groups in the United States. Black and Spanish-speaking Americans have above-average rates, for example, while Jews have below-average fertility
The microeconomic theory of fertility provides an opportunity to determine how public policies that were designed for quite different purposes could affect fertility rates. Identify some public
“According to the theory of the demographic transition, industrialization lowers population growth.” Discuss.
Label the following as True, False, or Uncertain and explain your choice. (Uncertain means that it can be either true or false depending upon the circumstances).a. Any economy that experiences a
Are you optimistic or pessimistic about the future? Why?
In thinking about the appropriate balance between the market and the government in achieving sustainability, do you think the government needs to take a stronger role or would you favor reducing
Consider a situation with two countries that have abatement cost functions :for j=L and j=H. The countries have identical damage functions D(E)= d.E. For each country the parameters sj are drawn
From Figure 1.1 it is clear that the marginal utility cost of pollution for each person at the optimum is:Figure 1.1(a) Consider a proposal to use the revenue from the Pigouvian tax to compensate
Show that the allocation which solves the first-order condition from Eq. (3.7) for a social optimum satisfies the second-order conditions.Equation 3.7 -C(e) = D'(E) i=1,.... (3.7)
Consider an industry consisting of two firms (j=1 and 2) that produce a consumer good and pollution. The abatement cost and damage functions are:(a) Determine the firms’ marginal abatement cost
In the 1990s, the leader of Germany’s Social Democratic Party, Oscar LaFontaine, suggested a type of environmental regulation combining emission taxes with a minimum allowable emission standard.
Consider the basic model shown in section 3.1 , but assume the social damage function is linear such that D(E)=d×E for d>0.(a) Show that for an efficient amount of pollution, both individual firm
Consider the generalized externality problem. Assume the damage and cost functions are given by:(a) Determine the non-regulated level of E if the polluter has the right to pollute.(b) Determine the
Suppose in a given area there are three power plants, each of which emits SO2 with different intensities. The abatement cost functions for each firm j are:(a) Set up the conditions for the socially
Consider constant marginal abatement cost for two firms:(a) Determine the optimal allocation for both firms when the damage function is convex, and when it is linear.(b) Is it possible to achieve the
Consider the case of J polluters and with abatement cost functions Cj(ej) and one pollution victim. Abatement costs are ordered from highest to lowest such that C1(e1)>C2(e2)>…>CJ(eJ). Assume the
Consider a situation where the true aggregate marginal abatement cost curve is given by: -C'(E)= a-b E, and the marginal damage function by D'(E)=d. E The regulator believes the marginal damage curve
Consider a situation where the true aggregate marginal abatement cost curve is given by -C'(E)= a-bE, and the marginal damage function by D'(E)= d.E. The regulator believes the true marginal
Our derivation of the Weitzman theorem has proceeded by assuming that the uncertainty in the abatement cost and damage functions (ε and η, respectively) are uncorrelated. If we generalize the
Weitzman’s research has motivated several subsequent papers examining how features of policy design in specific contexts interact with benefit or cost uncertainty to alter the original model’s
Consider a situation where the marginal damage function is known and equal to D'(E)= d.E. The aggregate marginal abatement cost curve is given by -C'(E)=ã-bE where is ãrandom variable uniformly
Consider a situation similar to the previous exercise. According to Roberts and Spence, the regulator can set n different levels of tradable permits L12.....N subsidy rates ζ12 n and tax rates
Show that Kwerel’s mechanism is not incentive compatible if the regulator allocates the permits for free. Would the firms over- or underreport their marginal abatement costs? Illustrate this
Consider a situation with two firms that have marginal abatement cost function The marginal damage function is known and given by D'(E)= d.E. Assume the regulator applies Kwerel’s mechanism, but
Consider a situation with two firms that have marginal abatement cost functions The marginal damage function is again equal to D'(E)=d.E. Assume the regulator applies Montero’s mechanism.
Consider a situation with J identical firms that have marginal abatement cost functions for j=1,…,J. The marginal damage function is equal to D'(E)=d.E Determine the optimal allocation and the
Consider the Montero mechanism with two (or three) firms.Assume that two firms (or two of the three firms) form a bidding coalition. Show that the bidding coalition can do no better than submitting
Modify the problem in example 4.2 by considering an increasing marginal damage function of type D(E)= dE2/2(a) Modify the example by assuming that there are K firms of type L and J−K firms of
Consider a regulator’s objective formulized as:(a) Show that at most one of the four constraints (incentive compatibility and participation) can be binding in this case, that the high cost
Which of the following costs functions satisfies assumption 5.1?(a) C(x,e)=α(x2/e) +βe(b) C(x,e)=0.5×[αe−βx)] +0.5×γx2(c) C(x,e)=αx2/e(d) C(x,e)=αx2/e+βe2 where α,β,γ>0.Data
Consider a firm whose technology satisfies assumption 5.2. The cost function is c(x)=c·x2/2. The output price is fixed and denoted by:p. Emissions are proportional to output according to e=α·x.
Our model of pollution in this chapter assumed that emissions are a pure private bad, and that people have no ability to protect themselves from the adverse consequences of exposure. In reality,
Consider the Cobb-Douglas production function with X=lα1lβ2 where α+β•l1, where d>0. (a) Denoting the input prices by w1 and w2, derive the cost function as it depends on x
Consider a firm with the production function x=f(l)=la, where α
Show using the model from section 5.2 that, for an exogenous number of firms, freely distributed permits or subsidies can be used to implement the social optimum.Data from section 5.2 In this section
Consider the model from section 5.4, where the number of firms is endogenous. Derive the comparative static results for emission taxes, auctioned permits, and absolute standards. That is, determine
Consider a Cournot oligopoly facing linear demand P(X)=1−X and constant marginal costs c>0 (and/or increasing marginal cost Cʹ(X)=cX). The social damage function is quadratic of the form
Show that in a symmetric oligopoly with free entry and firms’ technologies satisfying assumption 5.1 the first-best outcome can be achieved by an emission tax, a subsidy on output, and either an
Consider a firm that produces an output using two inputs so that x=f(l1,l2). Pollution is proportional to one of the inputs. The polluting firm has market power in the market for l1. Denote the
Consider the regulation of J local monopolies for different goods with inverse demand functions Pj(Xj) and cost functions Cj(Xj,ej). Social damage depends on total pollution and is given by a
Consider the partial model of Chapter 3 with an aggregate abatement cost function C(E satisfying the usual properties. The regulator charges an emission tax. Assume there exists a marginal cost of
Use a software package such as Matlab or Mathematica to program the example described in section 7.3.(a) Assume the environmental regulator ignores the impact on the labor market and sets an
Consider the transaction costs model of section 8.4. Show that a unilateral increase in the seller’s transaction costs (increasing α1) induces the permit price to decrease, while a unilateral
Consider J symmetric firms operating in two periods with constant over time cost functions Cj (x j, e j) = (xjbjej)2/2bj, +cjx2j /2 The output prices are exogenous and given by p1 and p2 for the two
Extend the model of this chapter by assuming that there are several firms with (possibly asymmetric) cost functions with increasing marginal costs. Assume first that emissions are regulated by a cap
Replicate the calculations of the example in section 7.3 using numerical software such as Mathematica, Mathlab or the like. Do the calculations also for the following parameter sets and interpret
Modify the model in this chapter by considering a closed economy with endogenous wage formation. The production sector is now characterized by a decreasing returns to scale production function F(L,E)
Consider a pollution problem with two sources and two recipient regions. Abatement cost functions are given by Cj(ej)=(aj−bjej)2/2bj for j=1,2. The diffusion matrix is given by:and the damage
Assume now that the consumer consumes a clean and a dirty good, the quantities of which are written as C and D, which generate utility U(C,D). Assume the clean and the dirty good are substitutes. A
Consider examples 9.2 and 9.3. Assume that social damage is quadratic as in the examples. Following section 9.2.3, assume that the regulator can only set a uniform tax. Determine the formula for the
Consider a spatial pollution problem with J pollution sources and M recipients. The regulator is concerned that M different permit markets will cause transaction costs to be too high. She decides to
Suppose that firms can invest in abatement technology prior to permit trading. Firms have abatement cost functions Cj (ej,κj), where κj is measured in money and lowers both the abatement and
Consider a stylized two-period model with banking. The aggregate abatement cost function in period t is given by C(E)= (at−be)2/2b with a1< a2 is D(E)=dE2/2.(a) Determine the optimal emission
Consider J−1 small polluting firms with abatement cost functions Cj(ej)=(aj−bjej)2/2bj and one large firm indexed j=1 with market power and abatement cost function C1(e1)=(a1−b1e1)2/2b1. Let
Consider two polluting firms with marginal production costs c1=0 and c2=0.25. Pollution is proportional to output with emission coefficients d1=1 and d2=0. Inverse market demand is
Consider J=J1+J2 polluting firms, where there are J1 firms of type 1 and J2 firms of type 2. The abatement cost functions are given by Cj(ej)=(aj−bjej)2/2bj for types j=1,2. The damage function
Consider two polluting firms with cost functions Cj(xj,ej). The inverse demand function is P(X). Firms engage in negotiations about the permit allocation and a transfer price in a first stage and
Consider J local monopolists with cost functions Cj(xj,ej) and facing inverse demand functions Pj(xj). The pollutant is homogeneous and the total supply of tradable permits is L, with each firm
Consider the energy sector consisting of J firms where energy producers are characterized by their cost functions Cj(xj,ej). The firms are subject to an emission trading system with a total emission
Assume there are two regions with a joint emission trading system. The government of region I can influence its abatement costs by investment. The abatement cost function is written as CI(eI,k)+k
Consider firms’ abatement cost functions Cj(ej)=(aj−bjej)2/2bj and an ambient damage function D(A)=δA2/2, where is the ambient pollution level.(a) Determine the optimal emission level.(b)
Assume electricity is generated by three technologies: a base load technology with cost function Cb(xb) and proportional emission coefficient αb; gas turbines with cost function Cg(xg) and emission
Repeat exercise 9.1 using for αj>0.Data from exercise 9.1 Consider firms’ abatement cost functions Cj(ej)=(aj−bjej)2/2bj and an ambient damage function D(A)=δA2/2, where is the ambient
Consider example 9.2. Determine the socially optimal level of abatement input in closed form for the case of independently distributed parameters νj and η.Example 9.2 Example 9.2
Modify example 9.2 by assuming there is only one firm. Assume that both η and ν1=ν can take two values: νL, νH, and ηL, ηH. Denote pLL=Pr(η=ηL, ν=νL) as the probablity that both parameters
Show that if in an ambient pollution problem with J polluters each firm pays only 1/J of the damage, there will be too little incentive to abate emissions efficiently.
Consider again examples 9.2 and 9.3 , and once again assume that there are two states of the world for each random variable, denoted by VLj , VHj and nL, nH. Denote the probabilities for these by
Consider a modified version of the model with uncertainty from section 9.2 . Assume that the firm is characterized by an output production function gj(lj), where lj is now a single productive input,

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