Consider a situation with J identical firms that have marginal abatement cost functions for j=1,…,J. The marginal damage function is equal to D'(E)=d.E Determine the optimal allocation and the optimal refunding shares B(J) of the Montero mechanism and the share of total refunding.

(a) Show that both individual and total refunding decreases with J.

(b) Show that both individual and total refunding decreases when the slope of the marginal damage function decreases.

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-C; (e) = a - be;