Suppose marginal damages due to industrial chlorine emissions e into a river system are defined by the equation MD = e. Assume that marginal abatement costs also are linear in the emission level: 1200 – e/2 for e<2400 MC = otherwise (a) Calculate the pollution level in the absence of any regulation. (b) Calculate the optimal level of pollution assuming it can be obtained costlessly. Now suppose there are transactions costs of altering pollution output equal to T = 500,000. Does the assignment of property rights now matter for efficiency? What is the optimal level of pollution taking account of the transactions costs? (c) Now suppose the marginal damage of chlorine release is e/4 instead of e. If the transactions and negotiation costs are as in (iii), what now would be the optimal level of pollution taking account of the transactions and negotiation costs? (d)

Suppose marginal damages due to industrial chlorine emissions e into a river system are defined by the equation MD = e. Assume that marginal abatement costs also are linear in the emission level: 1200 – e/2 for e<2400 MC = otherwise (a) Calculate the pollution level in the absence of any regulation. (b) Calculate the optimal level of pollution assuming it can be obtained costlessly. Now suppose there are transactions costs of altering pollution output equal to T = 500,000. Does the assignment of property rights now matter for efficiency? What is the optimal level of pollution taking account of the transactions costs? (c) Now suppose the marginal damage of chlorine release is e/4 instead of e. If the transactions and negotiation costs are as in (iii), what now would be the optimal level of pollution taking account of the transactions and negotiation costs? (d)

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 13PAE

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