1. Briefly explain the experiment conducted by Delmas and Lessem. Who were the experimental subjects? What were the treatments they were exposed to? What outcomes were analyzed? What were the results? Why might someone be concerned that their results would not be “externally valid,” meaning that they might not be generalizable to another population?

2. Was the SO2 trading scheme initiated by the Clean Air Act Ammendements of 1990 successful? Did it achieve its environmental objectives? Based on the estimates in the article by Chan et al., about how large were the annual benefits and costs of the program? When the program was being designed, what was expected to be the main source of benefits from the program? Where did most of the benefits ultimately come from? An irony of the program is that the costs of the program were much lower than expected but for a reason unrelated to the CAAA itself. What was the reason?

3. There was concern that the SO2 program would create a so-called “hotspot” problem. Explain what this is, and how a cap-and-trade system could cause such a problem in the case of SO2 emissions in the U.S. In the end, were hotspots a problem for the SO2 program?

4. What is the Porter Hypothesis (PH)? How is the PH inconsistent with traditional microeconomic theory? What are the “weak” and “strong” forms of the PH, and what does the empirical evidence say about whether these predictions of the PH are correct? What is the “pollution haven hypothesis?” Is it supported by the empirical evidence?