Question:
What type of decision-maker would use benefit-cost analysis as a decision rule? That is, identify a decision-maker whose only interest is the total net benefits to society of an activity, not the distribution of those benefits. If you identify one (or more), explain why distribution is not important to them. If you cannot identify one, discuss whether a benefit-cost analysis might nevertheless be useful.
Question:
In class we have seen that two important figures in the economics of climate change, Nicholas Stern and William Nordhaus, have very different views of the appropriate discount rate to use
when calculating the present value of future climate change damage. Suppose that climate change was to be adressed by implementing a global uniform Pigouvian tax (i.e. an optimally chosen tax which is the same in all countries). Which, of Stern and Nordhaus, would recommend the higher level for the tax? Explain with a graph.
Question : International environmental agreements
a) What determines whether an international environmental agreement is needed to address a given pollution problem, or whether action by individual governments is sufficient?
b) In the case of pollutants for which an international environmental agreement is needed, does the agreement necessarily lead to the optimal outcome? Justify you answer by providing an economic model that supports it. Make sure to explain the main assumptions, features and results of the model.