Assignment:
1. What is meant by a pecuniary externality? What is meant by a real externality? Does either type of externality had to a violation of Pareto efficiency? If so, what goes wrong - what should happen with the allocation of resources and what does happen with the allocation of resources?
2. What is a Pigouvian tax? How would it be applied in the case of a factory emitting polluting liquids to a river? How would it retnedy the externality? How would the revenue collected from the tax be used, and does this affect the extent to which the tax remedies the externality?
3. How does Coast's analysis of an externality differ from Pigou's? What does Coast assume about legal liability for harm from pollution? What does Coast assume about transaction costs?
4. What is a cap-and-trade system for regulating pollution emissions? How does it work? What are its attractive features? How do Individual Transferable Quotas (ITQs) in fishery management relate to cap-and-trade?
5. What is the definition of a public good? How does it differ from a conventional private good? Is it possible that there might be private provision of a public good? If so, would that provision be likely to occur at the socially optimally level - explain the reason for your answer.
6. What is the Hotelling Rule in the management of a non-renewable resource with zero extraction costs?
7. When there are positive extraction costs, explain the difference between the value of a barrel of oil in the ground and the value of a barrel of oil that has been extracted. What is the Ilotelling Rule in this case?
8. Have oil prices changed over the past 60 years in the manner suggested by the Holding Rule? If not, why not?
9. What must the demand function for an extracted resource look like in order for it to be optimal never to entirely exhaust the total deposit of the resource?
10. (a) What is the definition of a steady state solution for the management of a renewable resource such as a fishery?
(b) Explain how it is possible for there to be many alternative steady state solutions for the management of a fishery.
(c) What two steady state solutions are singled out in the theory of the optimal management of a renewable resource?
11. What is an open-access fishery? What is the economic condition that defines it? 1-low does the outcome with an open-access fishery differ from what is optimal in terms of (i) the effort devoted to catching fish, (ii) the size of the annual harvest, and (iii) the size of the fish stock?
12. How does a higher interest rate affect the optimal rotation for a stand of trees, if the owner expects to replant after harvesting each generation of trees? What is the economic logic
underlying this effect?
13. How do the existence of objectives such as recreation and ecosystem habitat alongside timber harvesting as an objective affect the optimal rotation for a stand of trees?