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Prices Versus Quantities With Increasing Marginal Benefits

Prices Versus Quantities With Increasing Marginal Benefits

By A. L. Goodkind, J. S. Coggins, T. A. Delbridge, M. Irhamni, J. A. Johnson, S. Jung, J. Marshall, B. Ren, M. H. Rogers, and J. Apte

Presented by Jay Coggins, University of Minnesota


Chair:

Jon Strand, DECEE

Wednesday, November 14, 2012

Time: 12:30-2:00 pm

Venue: MC6-598


 
Abstract: 
In the standard economic model of environmental policy, marginal benefits are assumed to be decreasing and marginal costs increasing in abatement. Recent scientific literature linking public health to pollution levels suggests that, in some important cases, the marginal benefit to abatement might be increasing. We compare quantity and price instruments in this setting, discovering a quantity corner at which the optimal quantity policy is at either zero or complete abatement. The presence of a more subtle price corner, unnoticed heretofore, means that identifying the optimal price policy can be surprisingly difficult from a technical perspective. A quantity policy is never strictly preferred to a price policy, but in some situations a price policy is strictly preferred. The level of uncertainty plays a central role that appears to have escaped notice until now, and current pollution restrictions might be inefficiently lax

Bio,  Jay Coggins:
Jay Coggins is an associate professor in the Department of Applied Economics at the University of Minnesota.  He teaches graduate courses in microeconomic theory and environmental economics, and has published widely on policy issues related to air and water quality. 


For further information on the presentation, contact Jon Strand at: jstrand1@worldbank.org, 202-458-5122

The Joint Bank-Fund Brown-Bag Research Seminars on Environment and Energy is a joint initiative between the Development Research Group, Environment and Energy Team (DECEE), World Bank, and the Fiscal Affairs Department, IMF. Organizers of the series are Jon Strand (DECEE), and Ruud de Mooij and Ian Parry (FAD/IMF). The seminars are held at lunch time, normally once every two weeks, alternately in the Bank and Fund. Aims of the seminars are to raise attention to, and interest in, environment, energy and natural resources issues in both institutions; to promote the interaction between the two institutions in these fields; and to improve the institutions' common work on policy.
 




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