3. A chemical factory discharges waste product into a river. The waste kills many salmon that are swimming upstream to spawn. While there will no doubt be other ecological damages from the chemical effluent, let's focus on those of fishery. Let E be tonnes of chemical effluent discharged per month. Then the marginal damage to fishery (measured in the terms of lost salmon stock) is MD = 8E. The chemical factory can reduce its effluent flows by treating its waste products. Its marginal abatement cost function is given by MAC = 800 – 10E. (a) Compute socially efficient equilibrium. (b) How does the liability for damages affect pollution level? Will the chemical factory change its emission levels in response to liability laws? (c) Will liability system automatically lead this polluter to a socially effi- cient level of emission (as calculated in a)? (d) Now, consider that the chemical factory has the right to use the river however it wants. It does not have to pay any compensation to fishery for any pollution damages. Thus, we might expect that factory will release 80 tonnes of chemical effluent per month. Is this where matters will remain? Explain in detail. Compare with a socially efficient level from a).
3. A chemical factory discharges waste product into a river. The waste kills many salmon that are swimming upstream to spawn. While there will no doubt be other ecological damages from the chemical effluent, let's focus on those of fishery. Let E be tonnes of chemical effluent discharged per month. Then the marginal damage to fishery (measured in the terms of lost salmon stock) is MD = 8E. The chemical factory can reduce its effluent flows by treating its waste products. Its marginal abatement cost function is given by MAC = 800 – 10E.
(a) Compute socially efficient equilibrium.
(b) How does the liability for damages affect pollution level? Will the chemical factory change its emission levels in response to liability laws?
(c) Will liability system automatically lead this polluter to a socially effi- cient level of emission (as calculated in a)?
(d) Now, consider that the chemical factory has the right to use the river however it wants. It does not have to pay any compensation to fishery for any pollution damages. Thus, we might expect that factory will release 80 tonnes of chemical effluent per month. Is this where matters will remain? Explain in detail. Compare with a socially efficient level from a).
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