Policy Instruments Functions

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4 Terms

1
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What function will firms minimise given a cap and trade permit scheme and what is its derivation?

Min TACi(ai) + p(eMAXi-ai-e)

dTAC/dai - p = 0 → MAC= p

2
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What function will firms minimise in the case of liability and what level of precaution should firms take?

Firms minimise Total Social Costs (TSC)

Min TC(x)+TD(x)

Therefore, MC(x)= - MD(x) is x*→ where the slopes are inverse

x* is the level of precaution the firms should take

3
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What function will firms minimise given an emissions tax and what is its derivation?

Min TAC(ai) + t(eMAXi-ai)

dTACi(ai*)/dai - t = 0 → MAC = t

4
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What function will firms minimise given a subsidy on abatement levels and what is its derivation?

Min TACi(ai)-sai

dTACi(ai*)/dai -s = 0

MACi(ai*) = s