Q 5,6,7 only 5. In 1983, the EPA asked the citizens of Tacoma, Washington, to de

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Q 5,6,7 only

5. In 1983, the EPA asked the citizens of Tacoma, Washington, to decide whether they wanted to accept some risk of cancer from arsenic in the air rather than face the probable closing of a copper smelter that provided 800 jobs. Is this a good policy, or should the EPA have simply make a decision on his own? 6. Suppose that two plants are located on a river. The upstream plant dumps hazardous chemicals into the stream. These hazardous chemicals reduced the output o downstream firm. That is, the downstream firm is incurring a marginal external cost much and the downstream plant is producing too little. Explain why this is the case. Now your answer in terms of the generalized production function for these firms. imposed by the other firm. In terms of efficiency, the upstream plant is producing too suppose the firms merge, does this affect the efficient allocation of resources? Illustrate 7. The newly elected president of an island nation has pledged to reduce air pollution. The nation has no close neighbors - the only source of air pollution are the two domestic chemical plants run by firm A and firm B. Firm A has been in operation for 50 years and has a pollution abatement (i.e. reduction) cost of x3, where x is a unit of pollution. Firm B, which operates a 6-month old plant has a pollution abatement cost of x2. Assume that neither firm is initially engaging in pollution abatement. The per unit benefit to a unit of pollution abatement experienced by the island's citizens is constant at $300 a. What is the socially optimal level of pollution abatement? How is the socially optimal level of abatement split between the two firms? b.The president considers engaging in command and control style quantity regulation and optimal? Why or why not? c. Alternatively, the president considers providing a subsidy of $300 per unit of pollution optimal? declares that each firm must engage in 80 units of pollution abatement. Is this socially abatement. What is the per firm and total level of pollution abatement? Is this socially

Explanation / Answer

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Solution- The EPA should simple make a decision of its own because of the following reasons-

1. t appears that a "conservative" cost-benefit approach provides the best basis for regulation of hazardous air pollutants. A health only approach conflicts with the no threshold assumption made by EPA and suggested by scientific evidence. Also, regulating emissions on a health-only basis merely delays consideration of costs and benefits.

2.  EPA is better equipped than the courts or the public to perform the initial balancing of costs and benefits, particularly in light of the strategic behavior problems associated with emissions regulation.

3. EPA can more readily monitor emissions and expenditures and determine when firms are engaging in strategic behavior than the courts can. A more complete cost-benefit approach along the lines suggested is likely to result in more rational regulations.

4.  EPA should not defer shutdown decisions to the public. EPA possesses far better information upon which to base such decisions. Moreover, no public "voting" mechanism appears capable of measuring the intensity as well as the direction of the public's preference. Efforts aimed at obtaining the public's views, however, can provide EPA with valuable information upon which to base a decision.

5. Finally, it appears that no simple changes in regulatory schemes will stop regulated firms from employing strategic behavior. In order to combat strategic behavior EPA should develop its emission monitoring and expenditure monitoring abilities. By doing so, EPA could more readily detect when firms are engaging in strategic behavior and, as a result, regulate the emissions of hazardous air pollutants more appropriately and consistently.

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