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Chapter 5- Pt 1.docx

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ECON 3220
Ali Kamar

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Chapter 5 Polluting product to actual pollution  We focus on emissions or pollution levels and the level of damage they cause due to exposure to pollution with a marginal damage (MD) function  And we look at the cost of reducing or abating emissions to a target or safe level with a marginal abatement cost (MAC) function  We develop a model based on these two functions: MD-MAC model similar to the aggregate demand= aggregate supply model or mWTP/MB=MC model in chpt 4 Total and marginal damage curves  A damage function relates quantity of emissions (E) or ambient concentration to the $ value of the damage it causes, total damage TD=f(E) o Usually increase in emissions (E)  increase in total damage (TD) o E can be increasing linearly or exponentially o Therefore, TD can be linearly increasing or exponentially increasing function of E  Marginal damage (MD) is the change in TD for a unit change in E. ∆TD/ ∆E o For a linearly increasing TD curve, MD curve is horizontal o For an exponentially increasing TD curve, MD curve is an upward sloping straight line Total and marginal abatement cost curves  Abatement cost is the cost of reducing emissions o More emission reduction  more abatement cost o More emissions  less abatement or control cost o So emission reduction and costs are positively related but level o
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