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ECON 3220 (17)
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Chapter 6.docx

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University of Lethbridge
ECON 3220
Ali Kamar

Chapter 6 February 26 Cost benefit analysis M  At regulated market emission E o Society bears all costs (TDC is max.) o Polluters go free (TAC is zero) which is not fair  Any regulation or emisMion reductions implies moving from E toward 0  So with regulation cost sharing starts: o Polluters start to bear some costs (TAC becomes positive) o Society benefits i.e damage cost to the society reduces (TDC starts to fall)  Foe example, by reducing emissions from E to E 1 o Benefits are generated to society (damage cost reduced) = C+D o Costs are incurred by the polluters (abatement cost increases) = D o Net benefits (NB)= Benefits – Costs= (C+D)-D= C>0  DWL of no control or abatement reduced (to the yellow triangle)  In reality, the socially efficient level of emission is E* is unknown  So, any pollution control program requires evaluating benefits and costs CBA Framework  There are four steps in Cost-Benefit analysis: o Step 1: Specify the project or program  Program delivery perspective (regional/national/global)  Program scale (location, timing, parties impacted)  Socially-efficient scale could be one example that requires maximizing net social surplus or benefits from a project. NSS is maximized or total social cost is minimized where MAC=MD  When MAC and MD curves are not precisely shown, sensiti
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