RES-ECON 162 Lecture 15: Res econ 262- 4:20:17
3 May 2017
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Document Summary
Two firms can have different aggregate demand permits. Aggregate demand for permits is the horizontal summation of their individual demands (their marginal abatement costs. ) Cost-effectiveness and transferable discharge permits: the emissions trading and emissions tax is two different ways toward the same act. To achieve a target with a tdp program, a regulator doesn"t have to know anything about the firms marginal abatement costs. The target is easily met by distributing the correct number of permits. This equivalency disappears when abatement costs are uncertain. The relative slope rule: if the slope of md is greater than the absolute value of the slope of. Mac, the social welfare is higher under tradable permits/ If the slope of md is less than the absolute value of the slope of mac, then social welfare is higher under the emissions tax. The social welfare loss is larger than the loss to the social trading program.
