Public Economics Lectures Part 1: Introduction

Weitzman: Optimal Policy with Uncertainty
Now suppose that there is uncertainty about the marginal costs of
reducing pollution.
Cost is now C (Q, θ) with θ unknown.
Marginal cost lies between MC LB and MC UB , with mean value given
by MC mean .
Objective: maximize expected social welfare
Formally, choose one of two options: p or Q directly:
max{E θ B(Q) − C (Q, θ), E θ B(Q(p)) − C (Q(p), θ)}
Choice depends on steepness of marginal benefit curve.
Public Economics Lectures () Part 7: Public Goods and Externalities 98 / 138