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Environmental economics

1. Evaluate whether the following statements are true, false, or uncertain. Use specific models to support your answer where possible. .

a. The theory of environmental regulation that involves endogenous politics is an example of a positive theory of regulation

b. Although tradable permits and emission taxes both yield a cost-effective allocation of emission reductions, emission taxes are costlier to the economy because of tax interaction effects.

c. With a dominant firm in a market for pollution permits, it does not matter (for efficiency) how permits are initially distributed

d. Firms are less likely to exaggerate their potential abatement costs if the proposed policy is an emissions standard, rather than a tax.

2. Discuss at least three important distributional challenges associated with global climate change policy.

3. Describe four of the advantages of global price approaches to climate change advocated by Nordhaus (2007b).

Solution Preview

Statement: The theory of environment regulation that involves endogenous politics is an example of a positive theory of regulation

Analysis :

The statement is uncertain based on the fact that the positive theories of regulation are used to examine why regulation occurs and not the regulations that occur. Since the statement gives the assumption that the theory of environment regulation involves endogenous politics as being under the positive theory of regulation, this is not accurate.

Statement: Although tradable permits and emission taxes both yield a cost-effective allocation of emission reductions, emission taxes are costlier to the economy because of tax interaction effects.

Analysis:

This statement is uncertain since the tax interactions effects rate has not being given. This cost of the emissions tax would be costlier if the tax rates were comparatively higher than when then they are low. The emissions tax is a price instrument since it is fixes the prices based on free tax permits. The presence of tax interaction effects on the emissions tax levels.

Statement: With a dominant firm in a market for pollution permits, it does not ...

Solution Summary

Environmental economics are scrutinized.

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