Climate change is the defining challenge of the 21st century. Fighting climate change requires worldwide effort. For simplicity, let us assume that there are two countries in the world, countries 1 and 2. The preferences of the two countries are identical and characterized by U(xj,C)= 3lnxj+lnC for j is element of (1,2) , where ix, s the private consumption of country j is element of (1,2), and C is the sum of global contributions for climate protection. Countries 1 and 2 contribute c1 and c2 , respectively, and hence C= c1+c2. Assume that px=pc=1 and that each country has a €800 budget for both goods. What are the two main characteristics of a public good? Determine the level of contribution from each country, and in the decentralized market equilibrium. Determine the socially optimal contributions from each country.
Climate change is the defining challenge of the 21st century. Fighting climate change requires worldwide effort. For simplicity, let us assume that there are two countries in the world, countries 1 and 2. The preferences of the two countries are identical and characterized by U(xj,C)= 3lnxj+lnC for j is element of (1,2) , where ix, s the private consumption of country j is element of (1,2), and C is the sum of global contributions for climate protection. Countries 1 and 2 contribute c1 and c2 , respectively, and hence C= c1+c2. Assume that px=pc=1 and that each country has a €800 budget for both goods. What are the two main characteristics of a public good? Determine the level of contribution from each country, and in the decentralized market equilibrium. Determine the socially optimal contributions from each country.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Climate change is the defining challenge of the 21st century. Fighting climate change requires worldwide effort. For simplicity, let us assume that there are two countries in the world, countries 1 and 2. The preferences of the two countries are identical and characterized by
U(xj,C)= 3lnxj+lnC
for j is element of (1,2) , where ix, s the private consumption of country j is element of (1,2), and C is the sum of global contributions for climate protection. Countries 1 and 2 contribute c1 and c2 , respectively, and hence C= c1+c2. Assume that px=pc=1 and that each country has a €800 budget for both goods.
- What are the two main characteristics of a public good?
- Determine the level of contribution from each country, and in the decentralized market equilibrium.
- Determine the socially optimal contributions from each country.
- Why does the socially optimal level of contributions in (c) differ from the level in (b)?
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