Exam 3 review
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exam 3 review. optimal pollution. what is appropriate level of waste? how to achieve that level (who has to reduce how much?) identify efficient levels of pollution discuss market levels of pollution demonstrate how policy can reconcile. efficient allocation of a fund pollutant.

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Exam 3 review

exam 3 review


Optimal pollution

optimal pollution

  • what is appropriate level of waste?

  • how to achieve that level (who has to reduce how much?)

  • identify efficient levels of pollution

  • discuss market levels of pollution

  • demonstrate how policy can reconcile


Efficient allocation of a fund pollutant

efficient allocation of a fund pollutant


Efficiency difficult use cost effectiveness criteria

efficiency difficult, use cost-effectiveness criteria

  • select Q based on other criteria

    • safe for human / ecological health

  • then, how to allocate responsibility for meeting this level?

  • use cost-effectiveness criterion

    • not necessarily optimal, but minimizes cost given some level Q


Cost effective allocation example

cost-effective allocation: example

  • assume 2 sources currently emitting 30 units

  • reduce to 15 units

  • how to allocate reduction between 2 sources?


Cost effective reductions

cost-effective reductions


Equal mac

equal MAC

  • cost of achieving given reduction in emissions will be minimized if and only if MC of control (abatement) equal across emitters

  • what policy instrument to achieve equality?

    • emissions standards

    • emissions charges

    • emissions trading


1 emissions standards

1. emissions standards

  • command and control

  • equal reduction?

  • not cost-effective

  • first source lower cost

  • total costs increase if both forced to clean up same


2 emission charges taxes

2. emission charges (taxes)


3 emissions permit system

3. emissions permit system


Sample question

sample question

  • with the aid of a graph illustrate optimal pollution abatement if MAC = 10 – E with a per unit tax of $5.

  • how would this change if MAC = 8 – E?


Energy efficient vs market outcomes

energy: efficient vs. market outcomes

air pollution and climate policy

  • Efficiency of C & C policy?

    • emissions standard set according to health “threshold”

    • protect the most sensitive members of popn

  • But adverse health effects are occurring at pollution levels lower than the ambient standard


Other problems

other problems

  • space

    • no account for number of people exposed

    • sensitivity of local ecology

    • costs of compliance in various areas

  • time

    • concentrations are important

    • standards based on averages

    • constant levels of control

  • exposure

    • indoor pollutants important too


Better to use other 2 instruments charges vs trading

better to use other 2 instruments:charges vs. trading

  • Emissions trading

    • Initial allocation matters

    • Free vs. auction

    • EU experience

      • Windfall profits to big polluters

    • RGGE in NE 2008

      • 10 NE states; emissions capped starting 2009

  • Emission charges

    • Tax damage costs per unit

    • Double dividend


Exam 3 review

population

  • model of population growth on development

  • model of development on population growth

  • microeconomic theory of fertility


Model of population on development

model of population on development

  • O = LX

    • O: output

    • L: number of workers

    • X: output per worker

  • O/P = (L/P)X…output per capita

    • P: population


Output per capita

output per capita

  • output per capita determined by

    • share of population in labor force (L/P)

    • output per worker (X)

  • whatever affects these 2 factors is population growth’s effect on development


Factor 1 share of population in labor force

factor 1: share of population in labor force

  • changes in age distribution

    • rapid growth means higher percentage of young people

      • large supply of people too young to work

    • slow growth means high % of older people

      • retirement effect

  • high pop growth retards per capita economic growth by decreasing % of pop in labor force


Factor 2 output per worker

factor 2: output per worker

  • most common productivity enhancer: accumulation of capital

  • is there a connection between pop growth and cap accumulation?

  • 2 connections:

    • more savings leads to more capital

      • fast growing pop save less

    • law of diminishing marginal productivity

      • with fixed factor (land), adding more labor diminishes productivity


Could pop growth enhance output per capita technological progress economies of scale

could pop growth enhance output per capita?technological progress / economies of scale


Model of development on population

model of development on population

  • theory of demographic transition: as nations develop they eventually reach a point where birthrates fall

  • stage 1: prior to industrialization, birthrates / death rates stable

  • stage 2: after industrialization, lower death rates (same birthrates)

  • stage 3: falling birthrates


Demographic transition

demographic transition


Microeconomic theory of fertility

microeconomic theory of fertility


Changing desired family size

changing desired family size

  • decreased benefits

    • shift from agriculture to industry

    • less demand for children as social security

    • decrease in infant mortality

  • increased costs

    • increased opportunity cost of mother’s time (more educational and labor mkt opportunities)

    • scarcity / cost of housing

    • cost of education


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