Assignment:
Question 1
Suppose that a deposit of a polluting subsistence has been discovered in an area neighbouring three countries. All three countries are interested in the removal of the pollutant, and assume that the benefits from the removal are a public good. The following table gives the willingness to pay (WTP) of each country for an additional unit of the pollutant to be removed. Assume that removing each additional unit of the pollutant costs $25,000.
a. If all three countries make their decisions independently, how many units of the pollutant will be removed? Explain your reasoning.
b. If the three countries make a decision jointly, how many units of the pollutant will be removed? Explain your reasoning.
c. Use your answers in parts a and b to explain why it is difficult to establish an agreement among the countries to remove the pollutant cooperatively.
Question 2
a. Assume that a local fisheries council imposes an enforceable quota of 100 tons of fish, on a particular fishing ground, for one year. Assume that 100 tons per year are the efficient level of fishing (i.e., MEY). When the quota has been reached, the fishery will be closed for the reminder of the year. Is this an effective way to manage the fishery? Discuss.
b. Will your answer in part a change if the 100-ton quota was divided into 100 transferable quotas, and distributed among the fishermen in proportion to their historical catch? Discuss.
c. Discuss whether you agree or disagree with the following statement.
"When the discount rate is high, it is possible for the fish stock size at MEY to fall below the level required to produce the maximum sustainable yield".
