In Mark A. Cohen, “The Costs and Benefits of Oil Spill Prevention and Enforcement,” Journal of...

In Mark A. Cohen, “The Costs and Benefits of Oil Spill Prevention and Enforcement,” Journal of Environmental Economics and Management Vol. 13 (June 1986), an attempt was made to quantify the marginal benefits and marginal costs of U.S. Coast Guard enforcement activity in the area of oil spill prevention. His analysis suggests (p. 185) thatthe marginal per-gallon benefit from the current level of enforcement activity is $7.50, while the marginal per-gallon cost is $5.50. Assuming these numbers are correct, would you recommend that the Coast Guard increase, decrease, or hold at the current level their enforcement activity? Why?

Expert Solution

The optimal level of enforcement activity by coast guard is that level of enforcement ativity corresponding to which marginal per gallon benefit from enforcement activity equals the marginal per gallon cost of enforcement activity.

If marginal per gallon benefit from enforcement activity is greater than the marginal per gallon cost of enforcement activity then enforcement activity should be increased till the two becomes equal.

If marginal per gallon cost of enforcement activity is greater than the marginal per gallon benefit from enforcement activity then enforcement activity should be decreased till the two becomes equal.

The marginal per gallon benefit from the current level of enforcement activity is $7.50 and the marginal per gallon cost from the current level of enforcement activity is $5.50.

Since, the marginal per gallon benefit from enforcement activity is greater than the marginal per gallon cost of enforcement activity, therefore, enforcement activity should be increased.

Thus,

The Coast Guard should increase their enforcement activity.

Rahul Sunny answered 2 years ago

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