Question 1. Evaluate whether the following statements are true, false, or uncertain. Use specific models to support your answer where possible. .
a. The theory of environmental regulation that involves endogenous politics is an example of a positive theory of regulation
b. Although tradable permits and emission taxes both yield a cost-effective allocation of emission reductions, emission taxes are costlier to the economy because of tax interaction effects.
c. With a dominant firm in a market for pollution permits, it does not matter (for efficiency) how permits are initially distributed
d. Firms are less likely to exaggerate their potential abatement costs if the proposed policy is an emissions standard, rather than a tax.
Question 2. Discuss at least three important distributional challenges associated with global climate change policy.
Question 3. Describe four of the advantages of global price approaches to climate change advocated by Nordhaus (2007b).