Sustainable Economic Development Exam


SustainableEconomic Development Exam

SustainableEconomic Development Exam

Q.1Social Discounta.3% social discount rate

Thesocial discount rate is also referred to as SRTP. The future benefitsand costs are weighed as are they are taking place right now. Thisdiscount rate will raise the economic advantages of the dam valueabout the costs of construction. Nevertheless, it will evaluate thedamages more massively at the long run especially if theenvironmental damages surpass the beneficial use of the dam. Thecosts about the environment could factor well into the decision tocancel the project. Therefore, 3% social discount may be advocated insome areas since it reflects the future interests better.b.If the social discount rate is 10% per year

Arelatively higher social discount rate shows that the future may beneglected. It may be hard for some societies to devote resources tofuture needs. Therefore, this may not be a bad or a good idea forvaluation of the environment. In most instances, it will reflect theshort-term interests better. Thus, it can be applicable in the longterm

CutoffDiscount Rate to make c a good and a bad idea

NPV= ∑i=50Bi/(1+r)50

NPV= PV (B) – PV(C)

Totalbenefits = (100,000*100*50) + (5,000,000*50) = 750,000,000

TotalCosts = (100,000,000 + 10,000,000) = 110,000,000

NPV=750,000,000 – 110,000,000 = 640,000,000

640,000,000= 750,000,000/(1+r)50

(1+r)50= 1.171875

50log(1+r) = 1.171875

log(1+r) = 0.0234375

1+r= 5

r= 4

Q2.PublicInterest Theory vs. Interest Group theory regarding marketablepermits vs. emission fees

Thepublic interest theory can be described as exogenous since it failsto include the public and lobbyists interest teams when it comes tothe issues of the environment. Contrastingly, the interest grouptheory can be described as endogenous since it includes all theinterest teams in the process. The marketable permits and emissionfees are two economic incentive types. The public interest theoryencourages emission fees since they would ensure that organizationsare held accountable for polluting and also limit the overallpollution. The public interest groups, on the other hand, believesthat less overall pollution is the most viable option since it servesthe best interest of the people. The interest group theory encouragesmarketable permits since they believe that the interest groups are incontrol of the government policies. The special interest group isinclusive of lobbyist for organizations that pollutes theenvironment. The lobbyist would prefer marketable permits since someof the firms have the capacity to buy dozens of the permit if theywant to pollute the environment. Public theory lobby group would notlike this since pollution as a whole may not be reduced (Mäler,2013).&nbsp

Q.3Roll back Method in Lowering Pollution

WhenXs&gtXm, there is a problem since the current pollution exceedsthose set. It, therefore, means that human life is in danger. Inessence, it is imperative that rollback method is evaluated. Each ofthe firms has a marginal abatement cost (MACs). Unless all theorganizations in operation have similar MACs and initiate with asimilar pollution level, the rollback method may be deemed notuseful. The efficiency problem of the approach is that we may fail toknow whether the optimal level is efficient enough based onmaximizing TB-TC. Nevertheless, even though we may assume it, withdifferent abatement costs, the reduction of the emissions needed bythe polluters fails to equate the abatement MC across the polluter.Therefore, it cannot be regarded as least cost (Callan&amp Thomas, 2013)


a.Tons of Mashed Potatoes to be produced

Consideringemission fee: =10Q-Q2-2(2Q) = 10-2Q-4 = 0

Q2Q= 6

Q*=3, therefore

E=2*3 = 6

Totalfees to be paid is equivalent to $2*6 = $12 = 10(3)(3)/ (-2+2(2(3)) =$9b.Amount to be paid for the new device

10QQ 2 2(2Q) = 10-(2Q+2) = 0

Q2Q*= 8

Q*= 4


Emissionfees = $2*4 = 8 = 10(4)(4)/(2+ 2(4) = $16

Thegains in profit = 16 – 12 = $4

Thefactory would be willing to pay about $4 for the new devicec.No Government Regulations on Pollution (part B)

Regulationin absentia = 10Q Q2 = 2Q = 0 10 Q 2Q* = 10 Q* = 5

Governmentand Market for abatement equipment

Theprofits do not change with the new technology. The factory lacks thewillingness to pay for the new technology unless there are governmentregulations. In essence, there is no pollution abatement marketunless the government needs it.

Q.5Offset system Equivalent to Marketable Permit System

Underthe offset system, permits are described based on the emissions. Theoffset system of transferable permits has the aspect of havingpredetermined standards for the quality of the environment and alsoensures that deterioration in any cleaner areas than the standard isreduced. Marketable permits offer the benefit of ensuring that costsare reduced at any level of environmental ambiance. Marketable andoffset permits expand the globally feasible pollution control taskssince new sources that are currently regulated to satisfy regulatorsthrough reduction of emissions at old sources which are subject tostate regulation are allowed. Marketable permits have the benefit ofsetting wholesome limitations on emissions in totality by issuingfixed number of licenses. Both offset system and commercial permitcan bring the unregulated sources into the regulated phase. Thus,they increase the amount of monitoring needed to uphold compliance.All the emissions trading systems give out results that are massivelyindividualized. Therefore, the two would be applicable within airquality regions that EPA defines (McFarland&amp Oates, 1985).Thus, offset method is equivalent to marketable permits.


Mäler,K. G. (2013).&nbspEnvironmentaleconomics: a theoretical inquiry&nbsp(Vol.7). Routledge

Callan,S. J., &amp Thomas, J. M. (2013).&nbspEnvironmentaleconomics and management: Theory, policy, and applications.Cengage Learning

McFarland,A. M., &amp Oates, W. E. (1985). Marketable permits for theprevention of environmental deterioration.&nbspJournalof Environmental Economics and Management,&nbsp12(3),207-228.