Question: Consider the model from section 12.1, where the countries utility functions are: (a) Determine the efficient allocations. (b) Determine the unilateral optimal emission choices (i.e.

Consider the model from section 12.1, where the countries’ utility functions are:

U(z.E.E)=2-E2E U (C,,E,E,)=2,-- -E. YE. x{ 2 The abatement cost functions are

(a) Determine the efficient allocations.

(b) Determine the unilateral optimal emission choices (i.e. the emissions Nash equilibrium).

(c) Assume goods transfer is possible. Under what circumstances does one country have to pay compensation to the other country, to incentivize that country to sign an emission-reducing contract?

(d) Carry out the same exercise for utility functions

given by (d-gE) 2h C(E)= (d,-8, E,) 2h C(E)=-

Data from section 12.1

U(z.E.E)=2-E2E U (C,,E,E,)=2,-- -E. YE. x{ 2 The abatement cost functions are given by (d-gE) 2h C(E)= (d,-8, E,) 2h C(E)=-

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