Economics 3220 Lecture Notes - Social Cost, Sensitivity Analysis
Document Summary
At regulated market emission em: society bears all costs (tdc is max. , polluters go free (tac is zero) which is not fair. Any regulation or emission reductions implies moving from em toward 0. So with regulation cost sharing starts: polluters start to bear some costs (tac becomes positive, society benefits i. e damage cost to the society reduces (tdc starts to fall) Dwl of no control or abatement reduced (to the yellow triangle) In reality, the socially efficient level of emission is e* is unknown. So, any pollution control program requires evaluating benefits and costs. There are four steps in cost-benefit analysis: step 1: specify the project or program. Socially-efficient scale could be one example that requires maximizing net social surplus or benefits from a project. Nss is maximized or total social cost is minimized where mac=md. When mac and md curves are not precisely shown, sensitivity analysis is conducted for varying degree of abatement targets.
