Economics Of Pollution Control

Question 1

Static Efficiency

Answer 1

1) Allocative efficiency (efficient level of pollution)

2) Cost efficiency (achieving a given level of pollution abatement at minimal cost)

Question 2

Dynamic Efficiency

Answer 2

Incentives for innovation

Question 3

Moral Suasion types

Answer 3

1) Gov intervene to provide better information

2) Gov persuade individuals and firms to behave more environmentally friendly

Question 4

Tradable Permits (aka Standards) results

Answer 4

• independent allocation rule for permits - efficient outcome always achieved
• equilibrium price= optimal tax rate
• equalisation of MAC (therefore cost- minimisation)

Question 5

Tradable Permits - permit allocation mechanisms

Answer 5

• Auctioned (distributional consequence same as taxes?)
• Allocated free of charge
• Grand fathering - allocated in proportion to historic emissions
• If market is competitive, the market allocatively equilibriate

Question 6

Tradable Permits - Problems

Answer 6

• If innovating firms have market power in the market for permits
• large number of firms innovate at the same time= price for permits will go down
• gov reduced amount of emissions to achieve new efficient level of emission by revoking some permits

Question 7

Types of Command & Control

Answer 7

• emission standards: prescribe set emission

- technology standard: prescribe a certain technology

Question 8

CC - Advantages

Answer 8

• substantially lower monitoring costs
• Better suited when efficient level of emissions is at or near 0
• Better in cases of emergencies