Leslie Knope at the Parks and Recreation Department of Pawnee is considering whether to impose taxes or quantity restric
Posted: Sun Jul 03, 2022 6:50 am
Leslie Knope at the Parks and Recreation Department of Pawnee is considering whether to impose taxes or quantity restrictions to curb the noise pollution of their environment. The taxes, (τS, τB), would be Pigouvian taxes on the marginal unit of noise that each club emits. The quantity restriction, (z¯S, z¯B), would be a lower bound on the amount of noise reduction for each club. For example, the Snakehole Lounge must reduce noise pollution by at least z¯S.
c. What are the optimal taxes τS and τB to achieve the social optimum? [3 points]
d. What are the optimal quantity restrictions z¯S and z¯B to achieve the social optimum? [3 points]
e. Do optimal Pigouvian policies achieve the same noise reduction as the optimal quantity restrictions in this setting? Please explain why in one sentence. [4 points]
Suppose Leslie Knope knows that one of the clubs has cost 10 and the other has 5, but she does not know which club has the high cost and which one has the low cost.
f. Propose a Pigouvian tax schedule that implements the optimum. [4 points]
g. Can quantity restrictions implement the optimum in this case? Please explain why or why not. [5 points]
Suppose Ron Swanson suggests to Leslie Knope that she should consider the trading of noise emission permits. Each nightclub is given 5 tradable noise emission permits. In essence, owning 1 permit allows the nightclub to emit 1 unit of noise.
h. After trading, how many permits do each nightclub have? Briefly explain your answer and compare the outcome to the social optimum. [6 points]
c. What are the optimal taxes τS and τB to achieve the social optimum? [3 points]
d. What are the optimal quantity restrictions z¯S and z¯B to achieve the social optimum? [3 points]
e. Do optimal Pigouvian policies achieve the same noise reduction as the optimal quantity restrictions in this setting? Please explain why in one sentence. [4 points]
Suppose Leslie Knope knows that one of the clubs has cost 10 and the other has 5, but she does not know which club has the high cost and which one has the low cost.
f. Propose a Pigouvian tax schedule that implements the optimum. [4 points]
g. Can quantity restrictions implement the optimum in this case? Please explain why or why not. [5 points]
Suppose Ron Swanson suggests to Leslie Knope that she should consider the trading of noise emission permits. Each nightclub is given 5 tradable noise emission permits. In essence, owning 1 permit allows the nightclub to emit 1 unit of noise.
h. After trading, how many permits do each nightclub have? Briefly explain your answer and compare the outcome to the social optimum. [6 points]