Consider J symmetric firms operating in two periods with constant over time cost functions C j (x
Question:
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 periods. When relevant, emission caps are denoted by E̅1and E̅2 in periods 1 and 2, respectively.
(a) Assume that first period emissions are unconstrained. Consider an allocation scheme for the second period given by:
Determine the firms’ emission and output choices in the two periods, as well as the second period equilibrium permit price.
(b) For part (a), verify that the allocation is efficient if λe= E̅2/E1 and λx=0
(c) Determine the firms’ choice in period 1 when lx =
(d) Consider now an open trading scheme from the perspective of a particular jurisdiction that takes both output and emission prices as given and uses an allocation scheme
Determine the firms’ emission and output choices in the two periods for the cases when there is no emission cap in the first period and when there is a binding cap in the first period.
Step by Step Answer:
A Course In Environmental Economics
ISBN: 9781316866818
1st Edition
Authors: Daniel J Phaneuf, Till Requate