Assume now that each firm has two abatement possibilities represented by the abatement vector l j =(l

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Assume now that each firm has two abatement possibilities represented by the abatement vector l_j=(l_j1, l_j2). The abatement cost function is additively separable and given by:

and and emissions are determined by:

Once again there are two states of the world k=L,H, with probabilities P^L_vand p^H_v= 1– p^L _vThe random variables are independent across firms.

(a) Determine the socially optimal allocation.

(b) Derive a formula for the second-best optimal firm-specific tax rates.

(c) Derive a formula for the second-best optimal uniform tax rate.

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A Course In Environmental Economics

ISBN: 9781316866818

1st Edition

Authors: Daniel J Phaneuf, Till Requate

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Question Posted: Feb 11, 2024 07:12 AM

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Assume now that each firm has two abatement possibilities represented by the abatement vector l j =(l

Question:

C(2)=Cx/2+21/2/2,

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A Course In Environmental Economics

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