Environmental Regulation Simulation

Abatement Subsidy

You will receive a government subsidy for each unit of emissions abated. You have two options:

  1. You may produce 1 or 2 units of output pollute and avoid the abatement cost
  2. Abate your emissions by 1 or 2 units and gain the government subsidy for each unit abated

You should choose the option that results in the maximization of profits.

A roll of the dice will determine the initial abatement subsidy. The per unit abatement subsidy is:

S = die + .5

For example, if the die roll is 6 the subsidy is 6.5. Trial and error will be used to determine the abatement subsidy that reduces emissions to the optimal amount.