When there is uncertainty about the marginal abatement cost curve and the marginal damage cost curve is ________,a transferable emission permit or a standard equal to the ________ is the socially efficient policy.

Question

Quizplus · Accepted Answer

When the marginal damage cost curve is vertical, it indicates that the damage cost of pollution is constant regardless of the level of emissions. In such a scenario, setting a standard equal to the socially efficient level of emissions ensures that the total amount of emissions does not exceed the level where the marginal abatement cost equals the marginal damage cost, achieving social efficiency despite uncertainty in the marginal abatement cost curve.

When There Is Uncertainty About the Marginal Abatement Cost Curve