Consider J J 1 J 2 polluting firms, where there are J 1 firms of type 1 and J 2 firms of type 2 The abatement cost functions are given by C j (e j ) (a j b j e j ) 2 2b j for types j 1,2 The damage function is D(E) dE 2 2, where E is total emissions (a) Determine the socially optimal allocation of ...

Consider J=J 1 +J 2 polluting firms, where there are J 1 firms of type 1 and

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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 C^j(e_j)=(a_j−b_je_j)²/2b_jfor types j=1,2. The damage function is D(E)=dE²/2, where E is total emissions.

(a) Determine the socially optimal allocation of emissions.

(b) Assume now that there are transaction costs T_j(t_j)=φ_t^tj, where t_j=|e_j−ē_j|. Assume that the regulator has issued a total number of permits that is socially optimal. Type 1 firms (type 2 firms) have an initial endowment smaller (larger) than socially optimal. Determine the trade equilibrium and calculate the welfare loss generated through transaction costs.

(c) Repeat part (a) for:

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A Course In Environmental Economics

ISBN: 9781316866818

1st Edition

Authors: Daniel J Phaneuf, Till Requate

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Question Posted: Feb 11, 2024 07:12 AM

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Consider J=J 1 +J 2 polluting firms, where there are J 1 firms of type 1 and

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Tut)=q11/2

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Lets go through these economic problems step by step Its important to note that these types of questions often require calculus optimization techniques a Determine the socially optimal allocation of e...View the full answer

A Course In Environmental Economics

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