Consider a situation with two countries that have abatement cost functions : for j=L and j=H. The
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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 independently from an identical Bernoulli distribution, with probabilities πL and (1−πL) for high and low values of s, respectively. The countries do not know each other’s abatement cost parameters. Derive the ex ante, second-best optimal contract, such that both countries would agree on the contract.
Possible transfer payments between countries must sum to zero. How must the mechanism be modified when D(E)=0.5-d-E2?
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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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