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Marginal Damage Analysis of Pollution

The document presents a problem set focused on environmental and resource economics, specifically analyzing the impact of pollution from a factory on two types of consumers: workers and retirees. It includes analytical problems related to marginal damage, pollution levels, and willingness to pay for pollution abatement, as well as a section on equity in environmental economics with suggested readings for further exploration. The second part encourages presentations on equity aspects in environmental targets and regulation.

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9 views2 pages

Marginal Damage Analysis of Pollution

The document presents a problem set focused on environmental and resource economics, specifically analyzing the impact of pollution from a factory on two types of consumers: workers and retirees. It includes analytical problems related to marginal damage, pollution levels, and willingness to pay for pollution abatement, as well as a section on equity in environmental economics with suggested readings for further exploration. The second part encourages presentations on equity aspects in environmental targets and regulation.

Uploaded by

nurlanmirzayev87
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Problem Set Chapter 4

Environmental and Resource Economics


Dr. Claudia Schwirplies

Part 1: Analytical Problem


Two types of consumers (workers and retirees) share a community with a polluting
factory. The pollution is nonrival and nonexcludable. The total damage to workers is 𝑝2
where 𝑝 is the amount of pollution and the total damage to retirees is 3𝑝2. Thus, marginal
damage to workers is 2𝑝 and marginal damage to retirees is 6𝑝. According to an analysis
by consulting engineers, the factory saves 20𝑝 − 𝑝2 by polluting 𝑝. Intuition: If the factory
is allowed to emit uncontrolled this saves money relative to tight emission limits, i.e. the
marginal benefit for the factory from polluting is 20 − 2𝑝.
a) Find the aggregate (including both types of consumers) marginal damage for the
public bad.

b) Graph the marginal benefit (savings) and aggregate marginal damage curves with
pollution on the horizontal axis.

c) How much will the factory pollute in the absence of any regulation or bargaining?
What is this society’s optimal level of pollution?

d) Starting from the uncontrolled level of pollution calculated in part c), find the aggregate
marginal willingness to pay for pollution abatement, 𝐴, for the consumers. (Abatement
is reduction in pollution; zero abatement would be associated with the uncontrolled
level of pollution.)

e) Again, starting from the uncontrolled level of pollution, what is the firm’s marginal cost
of pollution abatement? What is the optimal level of 𝐴?

Page 1|2
Part 2: Paper presentation

In this part, we deepen the discussion on equity in environmental economics. Below are
some suggested readings, which can be presented. You may also search for other
scientific papers addressing equity and justice in environmental targets and regulation.
One presenter can earn up to 0.7 (2) upgrade for the presentation. If you choose 2), just
focus on 1-2 of the addressed equity aspects or work in a team of two students.

1) Banzhaf, S., L. Ma, and C. Timmins (2019): Environmental Justice: The Economics
of Race, Place, and Pollution, Journal of Economic Perspectives, 33(1), 185-208.

2) Farber, D. A. (2012): Pollution Markets and Social Equity: Analyzing the Fairness of
Cap and Trade, Ecology Law Quarterly 39(1), 1-56.

3) Marklund, P.-O. and E. Samakovlis (2007): What is driving the EU burden-sharing


agreement: Efficiency or equity? Journal of Environmental Management 85(2), 317-329.

Page 2|2

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