Chapter 12: Q.20 (page 297)
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?
A pollution charge stimulates a profit-maximizing firm to find out how to minimize its emissions as long as the marginal cost of decreasing emissions is less than the tax.
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What does a point inside the production possibility frontier represent?
Consider the case of global environmental problems that spill across international borders as a prisoner’s dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can choose whether to protect the environment, at a cost of , or not to protect it, at a cost of zero. If one country decides to protect the environment, there is a benefit of , but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of , which is divided equally between the two countries.
a. In Table , fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the environment.
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
Is zero pollution possible under a marketable permits system? Why or why not?
Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all local people to enter the parks or to injure either the elephants or their habitat in any way. In a second approach, the government sets up the national parks and designates villages around the edges of the park as official tourist centers that become places where tourists can stay and bases for guided tours inside the national park. Consider the different incentives of local villagers - who often are very poor - in each of these plans. Which plan seems more likely to help the elephant population?
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