Assume now that each firm has two abatement possibilities represented by the abatement vector l j =(l
Question:
Assume now that each firm has two abatement possibilities represented by the abatement vector lj=(lj1, lj2). The abatement cost function is additively separable and given by:
and and emissions are determined by:
Once again there are two states of the world k=L,H, with probabilities PLv and pHv = 1– pL v The random variables are independent across firms.
(a) Determine the socially optimal allocation.
(b) Derive a formula for the second-best optimal firm-specific tax rates.
(c) Derive a formula for the second-best optimal uniform tax rate.
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The question seems to be related to a theoretical environmental economics problem where firms have two methods of abating pollution represented by lj1 and lj2 and their cost and emissions are functions of these abatement efforts You provided formulas for abatement cost and emissions but the question seems to be missing some pieces However I will give you a general approach to solving each part a Determine the socially optimal allocation The socially optimal allocation would minimize the total costs of pollution which typically includes both abatement costs and damages from pollution If the damage function ...View the full answer
Answered By
Rajat Gupta
used to take tution classes from my school time.
Conducted special topic claases during my graduation to help the students pass their exams.
Currently, teaching and conducting online claases during my post- graduation too.
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Related Book For 
A Course In Environmental Economics
ISBN: 9781316866818
1st Edition
Authors: Daniel J Phaneuf, Till Requate
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