In order to better understand the implications of carbon rationing, I went through the math of solving a consumer choice problem with a simple utility function and carbon rationing. The paper in its present version is on my web site at
http://www.econ.utah.edu/~ehrbar/cccr.pdf This is a draft version and comments are welcome. Here are some implications of this exercise as far as it goes at this point: (a) carbon rationing seems to work best if relative money prices and the relative carbon prices of the carbon-constrained goods are similar. Perhaps one can use fuel taxes or similar to adjust relative prices. (b) The idea behind carbon rationing is: profit maximization leads to distortions, but profit maximization under carbon rations is not much worse than profit maximization without carbon rations, and at least it gets things done in a carbon-constrained way. My little mathematical exercise suggests that the disadvantages of profit maximization become apparent if the carbon constraint changes over time. Such change can lead to sudden shifts in demand, as one kind of profit-induced distortion is replaced by a different kind of profit-induced distortion. (b) If technical progress is faster than the tightening carbon constraint, or if the good with the larger carbon footprint overtakes the other goods and becomes the good with the smaller carbon footprint, this creates disturbances which can be amplified by the profit motive into large shifts of demand. Hans G. Ehrbar http://www.econ.utah.edu/~ehrbar [EMAIL PROTECTED] Economics Department, University of Utah (801) 581 7797 (my office) 1645 Campus Center Dr., Rm 308 (801) 581 7481 (econ office) Salt Lake City UT 84112-9300 (801) 585 5649 (FAX) _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
