-------- Original Message --------
Subject: [Nocarbontrade-l] Carbon-Rationed Consumers Maximizing Utility
Date: Fri, 01 Aug 2008 14:46:57 -0600
From: ehrbar <[log in to unmask]>
To: [log in to unmask]
CC: [log in to unmask]
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 [log in to unmask]
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)
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