3.10 If global warming occurs, output of three of the major U.S. cash crops could decline by as much as 80% according to Roberts and Schlenker (2012).

Crop yields increase on days when the temperature rises above 50°, but fall precipitously on days when it is above 86°. Given this relationship between agricultural output and temperature, what would be the government’s optimal policy if it can predictably control pollution and hence temperature (and this agricultural effect is the only externality from global warming)? Can you use either a tax or an emissions standard to achieve your optimal policy?

How does your policy recommendation change if the government is uncertain about its ability to control pollution or predict the temperature?