For example, discovery of new reserves, availability of substitutes, and recycling would reduce the scarcity rent and more efficient extraction technology would reduce the stock effect.
Mathematically, scarcity rent is the shadow price of the physical stock constraint given that a market equilibrium is defined as maximizing the sum of producer and consumer surplus.
In other words, the CAC quantity restriction must create the same kinds of scarcity rents as tradeable permits, even with variable pollution per unit of output.
The only differences involve distributional effects, such as who gets the scarcity rents.
Consumers are really paying the higher price P', so they lose consumer surplus 2 + 3 + 4, and nobody gets the scarcity rents.
The crucial distinction is not whether the environmental policy raises revenue, but whether it restricts the quantity of emissions in a way that creates a scarcity rent that is left in private hands, rather than captured by government and used to offset the effect of higher output prices.
The following sections consider interactions with other taxes and the issue of scarcity rents.
First, to the extent that advertisers fund programming, the lack of competition in this technological stage is a benefit: the public broadcaster earns scarcity rents that defray the cost of Canadian programming.
Most fundamentally, with such choice, broadcasters will be competing more vigorously for viewers (and advertising revenues), including with foreign services, and scarcity rents associated with the over-the-air technology will be dissipated* This leaves less room for broadcasters to cross-subsidize less lucrative Canadian programming with rents from more lucrative programming.
Metcalf "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions, "NBER Working Paper No.
If the producer is a monopolist, the distortion persists with complete government appropriation of the scarcity rents from the environmental policy.