Equimarginal Principal (a simplified application using two firms)

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0 height="100%"><tr> <td valign="top" width=200 BGCOLOR="#003333" TEXT="#F7F7FF" background="040d4c00dduajq.gif"> <div> <TABLE BORDER="0" CELLPADDING="2" CELLSPACING="0" WIDTH="95" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 46 WIDTH="91"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="46" ALIGN="bottom" WIDTH="91" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <DIV ALIGN="LEFT"></DIV> <div> <IMG SRC="079b4bf0.gif" border=0 width="180" height="191" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></div> <bR> </td> <td valign="top" BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <FONT SIZE="5" COLOR="#003333" FACE="Arial" ><B>Tradable Pollution Discharge Permitting for Industrial Users</B></FONT>     |     <A HREF="index.htm" TARGET="_top" TITLE="Tradable Pollution Discharge Permitting "><U>home</U></A></div> <div> <A HREF="id17.htm" TARGET="_top" TITLE="About Me"><U>About Me</U></A>   |   <A HREF="id23.htm" TARGET="_top" TITLE="Tradable Discharge Permits For Industria"><U>Tradable Discharge Permits For Industrial Users</U></A>   |   <B>Equimarginal Principal (a simplified application using two firms)</B>   |   <A HREF="id25.htm" TARGET="_top" TITLE="Treatment Technologies"><U>Treatment Technologies</U></A>   |   <A HREF="id19.htm" TARGET="_top" TITLE="Segregation of Wastestreams"><U>Segregation of Wastestreams</U></A>   |   <A HREF="id24.htm" TARGET="_top" TITLE="News Items"><U>News Items</U></A>   |   <A HREF="id22.htm" TARGET="_top" TITLE="Favorite Links"><U>Favorite Links</U></A>   |   <A HREF="id20.htm" TARGET="_top" TITLE="Contact Me"><U>Contact Me</U></A></div> <div> Equimarginal Principal (a simplified application using two firms)</div> <bR> <div> The Equimarginal Principal</div> <div> <U>Characterization of the firms</U>: </div> <bR> <div> Firm A is a larger firm, with lower control costs</div> <div> (more control technology)...</div> <div> Firm B is a smaller firm with higher control costs</div> <div> (less control technology)...</div> <bR> <div> <IMG SRC="06305ac0.gif" border=0 width="261" height="172" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></div> <bR> <div>      Assume that initially neither firm is controlling any emissions, so the total pollutant discharge to the POTW is 210 tons/yr. (120 from Firm A and 90 from Firm B). Assume our policy goal is to reduce total emissions by 50%, to 105 tons/yr.; thus, we will allocate 105 permits, each to correspond to one ton of emissions and distribute them accordingly, so that firm A gets 60 permits and B gets 45 permits. Firm A will have to cut back to 60 tons/yr. and Firm B will have to cut back to 45 tons/yr., unless they can redistribute the permits among themselves through buying and selling - creating the market for permits. </div> <div>      When Firm B cuts emissions to 45 tons/yr. its marginal control cost is $4,000/ton; if they could buy a discharge permit for some price <I>less than</I> $4,000 they would be better off because they would <U>save the difference</U> between the cost of the permit and the cost of control...$4,000 minus some price less than $4,000.</div> <div>      When Firm A cuts emissions to 60 tons/yr. its marginal control cost is $1,200/ton; if they could sell a discharge permit for some price <I>greater than</I> $1,200 they would be better off because the <U>revenue from the sale</U> would more than cover the additional cost of control associated with reducing emissions by the amount equal to the permit, <U>ie.</U> by 1 ton.</div> <bR> <div> <IMG SRC="09441a50.gif" border=0 width="321" height="165" ALT="Microsoft Drawing 1.01" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></div> <div> (From <I>Environmental Economics: An Introduction</I> by Barry C. Field)</div> <bR> <div>      So, Firm A would be willing to sell a permit for some price greater than $1,200 and Firm B would be willing to buy a permit for some price less than $4,000 (the blue line); thus, there are gains to be made from trade for both polluting firms. Gains from trade would continue to exist and permits would continue to be traded until marginal control costs are equalized at 40 tons of emissions for Firm A and 65 tons of emissions for Firm B. ***The essential point here is that as long as <FONT SIZE="4" COLOR="#0000FF" FACE="Arial" >treatment technologies...</FONT><FONT SIZE="2" COLOR="#000000" FACE="Arial" >(click this title/page next) </FONT>differ, and marginal control costs are unequal between the two firms, they can both become better off as a function of the market system - the Tradable Discharge Permit system.</div> <bR> <div> <A HREF="id17.htm" TARGET="_top" TITLE="About Me"><U>About Me</U></A>   |   <A HREF="id23.htm" TARGET="_top" TITLE="Tradable Discharge Permits For Industria"><U>Tradable Discharge Permits For Industrial Users</U></A>   |   <B>Equimarginal Principal (a simplified application using two firms)</B>   |   <A HREF="id25.htm" TARGET="_top" TITLE="Treatment Technologies"><U>Treatment Technologies</U></A>   |   <A HREF="id19.htm" TARGET="_top" TITLE="Segregation of Wastestreams"><U>Segregation of Wastestreams</U></A>   |   <A HREF="id24.htm" TARGET="_top" TITLE="News Items"><U>News Items</U></A>   |   <A HREF="id22.htm" TARGET="_top" TITLE="Favorite Links"><U>Favorite Links</U></A>   |   <A HREF="id20.htm" TARGET="_top" TITLE="Contact Me"><U>Contact Me</U></A></div> <bR> </td> </tr></table></body>