Reference no: EM137101

Consider the problem of carbon dioxide emissions. We will abstract away from the problem somewhat, assuming there are polluter and consumers in two regions OECD (O) and the rest of the world (R). Suppose the marginal cost of controlling CO2 emissions is $10 per ton of emissions. Let the marginal willingness to pay for pollution reduction is 13-Q for (O) and 12-2Q for (R) where Q is the amount of pollution deduction. The UN is allowing for two proposed methods for controlling CO2 emissions, both involving polluters paying for the smash the cause. Proposal A engrosses the polluters paying for the damages to each region for the pollution generated. Proposal B involves the polluters in each region independently negotiating pollution deductions, assuming the other region is not undertaking pollution reduction.