Environmental Economics at Christian-Albrechts-Universität zu Kiel

Flashcards and summaries for Environmental Economics at the Christian-Albrechts-Universität zu Kiel

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Study with flashcards and summaries for the course Environmental Economics at the Christian-Albrechts-Universität zu Kiel

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

State the environmental policy instruments and a short explanation.

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

What is the problematic in the free market if the firm selects it‘s labour and emission inputs to maximise profits

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Describe a ecosystem service by an example.

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Descripe the policy problems that might arise while searching for fitting EE solutions?

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Describe SC

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Describe the Coase Theorem.

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Define Pareto Optimality 

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Define both welfare theorems 

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Define problems of the welfare theorems 

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

What are the problems of public goods and externalities in EE

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Define Pareto optimal allocation, while finding the optimal consumption levels - considering a dirty and a clean good.  

Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

How to describe pareto optimality as a curve?

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Exemplary flashcards for Environmental Economics at the Christian-Albrechts-Universität zu Kiel on StudySmarter:

Environmental Economics

State the environmental policy instruments and a short explanation.
1. Command and Control
> government fixe a emission standard

2. Emission Taxes
> tax of size r for each unit of pollution
> higher taxes lead to lower emissions

3. Auctioned pollution permits
> government auctiones off a certain amount of pollution rights (L)

4. Freely distributed pollution permits
> firms receive a initial endowment of permits, they can sell and buy accordingly

5. Subsidies
> firms receive payment for each unit of pollution abated 

Environmental Economics

What is the problematic in the free market if the firm selects it‘s labour and emission inputs to maximise profits
-> firms treat emission levels like a free factor of production.

-> the profit maximization problem is:
Max (Lx,E) (px f(lx,E)-wlx)
w.r.t lx  = W
w.r.t E = 0

In the free market there is no mechanism that encourages the firms to account for their impact.

Environmental Economics

Describe a ecosystem service by an example.
E.g. riverine wetlands is an ecosystem which has the ability to provide flood protection, wildlife habitat, sinks for excess nutrients & other.

-> a type of commodity produced by the environment.

Environmental Economics

Descripe the policy problems that might arise while searching for fitting EE solutions?
- determining the amount by which emissions should be reduced
- designing a mechanism that reduces the emissions
- abatement cost share among the affected parties 

Environmental Economics

Describe SC
The social cost is to be minimized by choosing each firms emission level.

Min SC (e1,...,1j) = Cj(ej)+D(E)
w.r.t. EJ
-C‘J(ej)=D‘(ej)

Marginal damage = marginal abatement costs
Marginal abatement costs equal through all polluters.

Environmental Economics

Describe the Coase Theorem.
Is a simple assignment of the property rights to either the household or the firms.
Private negoations between the parties may lead to a pareto optimal solution (Coase 1960)

When households hold the property rights; firm suggests a contract > a certain compensation money for the suffer.

TC (E) = C (E) + D(E) + tr
Tr</= C (0) - (C‘(E) + D‘(E))
Transaction costs must not exceed the gains from negotating a efficient outcome.

When the firms has the pollution rights, household suggests a a compensating contract.
Tr>/= D(E) (D‘(E) + C‘(E))
Firms will accept if the compensation money is >/= C (E)

Tr is usually to high to make it feasible

Environmental Economics

Define Pareto Optimality 
An economic outcome is said to be pareto optimal of a reallocation of resources cannot make at least one person better off without making one person worse off. 

Environmental Economics

Define both welfare theorems 
If markets are complete and perfectly competitive, with a dezentralized price system together with a self/interested behaviour, provides an allocation of ressources among individuals that is pareto optimal.  

Environmental Economics

Define problems of the welfare theorems 
It is very difficult to arrange suitable taxes and transfers, furthermore the first and second wellfare theorem is often not met!

1. There is a absence of well definded property rights for e.g. Clean air, potable groundwater.
2. No one is obliged to pay for the use of environment as an input.

The free market does not lead to an efficient allocation! 

Environmental Economics

What are the problems of public goods and externalities in EE
They lead to a type of missing market situation that violates the condition of the welfare theorem. 

Environmental Economics

Define Pareto optimal allocation, while finding the optimal consumption levels - considering a dirty and a clean good.  
Utility function
Ui(xi,zi,E)
Production function
X=f(lx,E); Z=g(lz)

Max U1 (x1,z1,E)
+ λu (U2(x2,z2,E) - u2 (average)
+ λx (f(lx,E))-x1-x2)
+ λz (g(lz)-z1-z2)
+ λl (l-lz-lx)

FOC‘s
dU1(*)/dx1 = λx      dU1(*)/dz1 = λz
λu dU2/dx1 = λx λu dU2/dz2 = λz

-> efficiency in consumption requires that the marginal rate of substitution between goods is the same for both individuals  
-> pareto optimal case

w.r.t. l yields:
λl for both lx/lz

-> Efficiency in production requires that the shadow value of marginal product of labour equals the shadow price of labour. 

 

Environmental Economics

How to describe pareto optimality as a curve?
The slope of the production possibility set is equal to each person‘s indifference curve. 

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