Part 1: Pollution Policies
6 units of pollution
Clean up – 3 units
Cost of the Policy = 6 x 3
Damage = >$10
This would not be an efficient policy as it would fail to meet the minimum standards set for the clean-up. As a result, additional costs are bound to be incurred to raise more funds to cater for the additional costs. In the long term, the failure of the costs to meet are bound to strain the policy. Hence, making it inefficient.
The tax and a cap policy is used to generate funds that can be directed to pollution control. The taxes are acquired from related activities from the affected areas and the cap comprises of the maximum limit established for pollution. The trade policy allows the operating entities to commit a certain amount of their profits to pollution control.
Part 2: Climate Change
Ensure that countries contribute to the spending budget depending on their level of emissions. The higher the emissions, the higher they should contribute to climate control.
Germany would have a higher welfare gains from the process. This is attributed to the effects of world war II and the need to keep the world a safer place. Germany’s commitment to contribute the highest amount shows great resilience and zeal in economic capacity to cater for climate change.
Chile will have the highest net benefits. This is because it contributes the least yet attains equal or more net gain as the rest of the countries.
The difficulties are as a result of the contribution value and the economic benefits each country attains. For instance, it is illogical for third world countries bound to benefit the least from the economic benefits of climate change control for they are the least emitters being forced to operate on the same level as the large emitters. Furthermore, climate control denies third world countries to expand their industries to the level of developed nations. Hence, the economic benefits are eliminated.