2. Company A, the polluter, is located upwind of Company B, the victim, in a certain airshed. A's factory pollutes the air, thereby harming B's operations. A's marginal abatement cost is MAC(E)= 30E/3, where E is the amount of emissions. B's marginal pollution damages from emissions are MPD(E)= (2/3) - E. Suppose victim B has the right to perfectly clean air. What will be the observed level of emissions from polluter A, in the absence of bargaining? If the transactions costs of bargaining are zero, how much pollution will A emit after bargaining? What will be the minimum amount that B must be paid to agree to accept an emissions at this level?

2. Company A, the polluter, is located upwind of Company B, the victim, in a certain airshed. A's factory pollutes the air, thereby harming B's operations. A's marginal abatement cost is MAC(E)= 30E/3, where E is the amount of emissions. B's marginal pollution damages from emissions are MPD(E)= (2/3) - E. Suppose victim B has the right to perfectly clean air. What will be the observed level of emissions from polluter A, in the absence of bargaining? If the transactions costs of bargaining are zero, how much pollution will A emit after bargaining? What will be the minimum amount that B must be paid to agree to accept an emissions at this level?

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter14: Environmental Economics

Section: Chapter Questions

Problem 7SQ

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