Question 1: S The main purpose of monitoring and enforcement is to ensure the desired compliance at the Un-UC least social costs. The basic formula of monitoring and enforcement is p > Uc, where p is the monitoring probability, Un and Uc are the respective utilities to the agent associated with non-compliance and compliance, and S is the penalty if found in non-compliance. It is easy to demonstrate that when the punishment for a violation S is infinite, the probability of monitoring will be zero. However, in real world, there exists the possibility of Type I error (an issue of false positive), that is, high penalties (but far from infinite) could be issued to somebody not guilty of a violation. a) What problems could be caused by false positive? b) What are your proposals for dealing with false positive? Justify your proposals. Note: You need to refer to environmental economics when answering the questions. Question 1: S The main purpose of monitoring and enforcement is to ensure the desired compliance at the Un-UC least social costs. The basic formula of monitoring and enforcement is p > Uc, where p is the monitoring probability, Un and Uc are the respective utilities to the agent associated with non-compliance and compliance, and S is the penalty if found in non-compliance. It is easy to demonstrate that when the punishment for a violation S is infinite, the probability of monitoring will be zero. However, in real world, there exists the possibility of Type I error (an issue of false positive), that is, high penalties (but far from infinite) could be issued to somebody not guilty of a violation. a) What problems could be caused by false positive? b) What are your proposals for dealing with false positive? Justify your proposals. Note: You need to refer to environmental economics when answering the questions