EC238 Chapter Notes - Chapter 14: Informationweek, Decision Rule

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3 Oct 2013
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Chapter 14 compliance costs, uncertainty, and information. A second-best decision rule for regulators when there is uncertainty about the mac or md curve is to minimize the social loss associated with the choice of policy. Social loss is the area between the md and. Mac curves from the actual pollution level to the socially efficient level. Information revelation incentives use of a policy instrument to induce a person or firm to reveal information about the shape and location of a curve of interest to the regulator. Second-best situation when the economy is already operating with some pre-existing distortion and government regulators seek to correct a new distortion, taking into account that it cannot achieve the first best equilibrium, one that is socially efficient. Social compliance costs private compliance costs borne by a polluter net of taxes, subsidies, or transferable emission payments to the government.

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