ECON 318 Lecture Notes - Lecture 13: Clean Development Mechanism, Externality, Sam Raimi
9 Jul 2016
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The initial development illustrates how cap and trade systems are less costly to implement, from an economy-wide standpoint than direct controls. Subsequently, the note is a cut and paste from two articles that appeared in the winter 2013 issue of the journal of economic perspectives that contained a symposium on cap and trade control systems. The marginal abatement cost functions for each firm are as follows: B mca = 120 (6/5)e a mca = 40 (2/5)e. Suppose each firm is allowed to emit 80% of the amount it emitted prior to the introduction of the permit system. Hence, 80 is the permit allocation to each firm. The cost to achieve that target is for a: (1/2)*20*8 = , and for b: (1/2)*20*24 = . This is obtained by adding the marginal costs associated with each unit of reduction. Suppose they are now permitted to trade permits.
