Iowa State University
Department of Economics

ECON 681 Spring 1995
C. Kling

FINAL EXAMINATION

Write your answers as completely and concisely as possible, remembering that you have two hours in which to complete the exam. Answer a total of 6 questions. Questions 1-3 are required, choose 3 from the remaining 4. Good luck!

Answer each of the following three questions.

1. Pollution Control Policy (25 points)

A. How does uncertainty in the marginal abatement cost function affect the choice of taxes vs. standards?

B. What is the spatial problem in pollution control and how can marketable permits be designed to effectively deal with this problem?

C. Since per unit taxes and subsidies have the same marginal conditions for firms' behavior, they have the same efficiency properties. Do you agree?



2. Empirical Valuation Approaches (25 points)

A. Describe the random utility approach to valuing environmental goods using recreation demand data. What kind of data would you need to estimate a model of this sort?

B. Describe some of the issues/problems in estimating continuous recreation demand models.

C. Describe the two competing models used to interpret and estimate referendum style questions in contingent valuation surveys.


3. Define compensating variation, equivalent variation, and consumer surplus for price changes. Under what circumstances are these measures identical? close? Do these results apply to quality changes? (20 points)

Choose three of the following four questions to answer. (15 points each)


1. Describe Varian's solution to the problem of externalities. Under what circumstances will his solution work best?

2. How does Michael Hanemann explain the empirically observed divergence between willingness-to-pay and willingness-to-accept values of environmental goods? Do the Shogren et al. experimental results support his explanation?

3. Summarize the main recommendations of the NOAA panel report on contingent valuation.

4. What is the property of weak complementarity and why is it important in empirical welfare analysis?