1.An important criticism of the transfer system discussed in class to incentivize countries to choose the emission levels that are globally economically efficient is that a particular choice of transfers is designed to prevent a particular deviation from the globally economically efficient emission levels but may not necessarily prevent other possible deviations. Ideally, what would be needed is a transfer system under which all countries would be better off (or at least not worse off) when choosing the economically efficient emission levels relative to ANY possible deviation from the globally economically efficient emission levels.

2. To adapt the Faustmann rule for efficient rotation to a model where there are also nontimber forest benefits, we have to add the nontimber benefits to the marginal cost function (with the interpretation of foregone benefits when the forest is harvested). Depending on which particular nontimber forest benefit one is interested in the Faustmann rule may lead to quite different predictions about optimal harvesting. In particular, if the nontimber forest benefits are sufficiently high, the Faustman rule may imply that one should never harvest the timber.

True or False: In each of the questions 1-2 say if the statement is true or false and explain why. Credit is given for the thoroughness of the explanation.