ENVIRONMENTAL ECONOMICS
(08ECC139)
Summer 2009 2 Hours
Answer ALL questions in Section A and TWO questions from Section B.
Any approved University Calculator is permitted.
You must write your answers using in ink.
Answers written in pencil may receive a zero mark.
SECTION A
1. Using only an annotated diagram, indicate the efficient tax on emissions from a
factory.
[10 marks]
2. Assume the world consists of two countries, X which is poor and Y which is rich.
The total benefits (B) and total costs (C) of emissions abatement (A) are given by
the functions:
BX = 8(AX + AY)
BY = 5(AX + AY)
(a) Obtain the non-cooperative equilibrium levels of abatement for X and Y.
[10 marks]
(b) Obtain the cooperative equilibrium levels of abatement for X and Y.
[10 marks]
3. Explain the intuition which underlies the Hartwick rule for capital accumulation.
[10 marks]
SECTION B
4. Explain why the Environmental Kuznets Curve (EKC) has an ‘inverted U-shape’.
Paying particular attention to the role of developing countries, can we conclude
from studies which provide empirical support for the EKC hypothesis that economic
growth is good for the environment? [30 marks]
5. Assess the relative merits of tradable market permits and ONE other pollution
control instrument. Drawing on the findings from laboratory experiments, provide
some policy advice on designing a tradable permit system. [30 marks]
6. Distinguish between weak and strong sustainability. Explain the principal features
of Solow’s model of intergenerational natural resource allocation and assess
whether the key result holds for alternative specifications of the production function.
[30 marks]
Page 1 of 2
(08ECC139)
Summer 2009 2 Hours
Answer ALL questions in Section A and TWO questions from Section B.
Any approved University Calculator is permitted.
You must write your answers using in ink.
Answers written in pencil may receive a zero mark.
SECTION A
1. Using only an annotated diagram, indicate the efficient tax on emissions from a
factory.
[10 marks]
2. Assume the world consists of two countries, X which is poor and Y which is rich.
The total benefits (B) and total costs (C) of emissions abatement (A) are given by
the functions:
BX = 8(AX + AY)
BY = 5(AX + AY)
(a) Obtain the non-cooperative equilibrium levels of abatement for X and Y.
[10 marks]
(b) Obtain the cooperative equilibrium levels of abatement for X and Y.
[10 marks]
3. Explain the intuition which underlies the Hartwick rule for capital accumulation.
[10 marks]
SECTION B
4. Explain why the Environmental Kuznets Curve (EKC) has an ‘inverted U-shape’.
Paying particular attention to the role of developing countries, can we conclude
from studies which provide empirical support for the EKC hypothesis that economic
growth is good for the environment? [30 marks]
5. Assess the relative merits of tradable market permits and ONE other pollution
control instrument. Drawing on the findings from laboratory experiments, provide
some policy advice on designing a tradable permit system. [30 marks]
6. Distinguish between weak and strong sustainability. Explain the principal features
of Solow’s model of intergenerational natural resource allocation and assess
whether the key result holds for alternative specifications of the production function.
[30 marks]
Page 1 of 2
