Indian Institute of Technology

End-Autumn Semester Examination 2012-2013

Subject Name: Environmental Economics Subject No: HS30072

Time: 3 hours Full Marks: 50
4th Year MSc. Int. in Economics

Answer All the Questions

1. Distinguish between flow pollutants and stock pollutants. Explain and derive the
conditions for a static model of efficient flow pollution. Explain the efficient levels of
emissions of stock pollutants taking account of space and time. (2+4+4)

2. What are the different criteria used for selection of pollution control instruments? Explain
the institutional approaches which facilitate intemalisation of externalities and their
limitations. Show how the economic incentive (market-based) instruments (e.g. emission
taxes, pollution abatement subsidies, and marketable emission permits) create market for
pollution externalities and their implications on income and wealth distributions. (2+ 3+5)

3. Distinguish between uncertainty about pollution abatement cost and pollution damages
and explain the concept of efficiency losses arising from making decisions under
condition of uncertainty. In the event of information asymmetry while choosing pollution
instruments show how the firms' incentives to be untruthful under tax and marketable
permit regimes and outline one possible instrument (a mixture of abatement subsidy and
marketable permits) that is incentive-compatible. (3+ 7)

4. Define and discuss various components of use and non-use value of environment, and
critically discuss various methods for measuring the benefits of environmental
improvements and/or degradation ( 10)

5. Outline key evidences that provide proof of global warming and climate change. Analyse
the problems of climate change in the light of economic theories and .ethical framework.
Discuss how climate change will affect people around the world, including the potential
implications for access to food, water stress, health and well being, and the environment.
(3+4+3)