Econ Week 7: Fri 3.jpg - Tradable Permits Emissions trading is Firm I can save $8ooo if they are allowed to produce one extra ron of pollution by firm 2

Econ Week 7: Fri 3.jpg - Tradable Permits Emissions trading...

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Unformatted text preview: . Tradable Permits / Emissions trading is Firm I can save $8ooo if they are allowed to produce one extra ron of pollution by firm 2 can reduce their pollution by one ton for only 520 4 if there was no market for pollution credits, firm! would simply have to eat the $8000 cost is Gov. can cap pollution and give out permits bif a tradable allowances market exists, Firm llan buy one credit from Firm 2, perhaps at a lost of sooo - Firm , is then $4000 better off - Firm 2 is $ 3980 beHer off - society is $7980 better off (resources freed up for alternative vse ) * Pigouvian taxes and tradable permits preserve incentives for any firm to lower pollution. command and control does not which is better, taxes or permits? S It depends on info. we have bif there is perfect information, the 2 are equivalent s if the threshold acceptable level of pollution if fairly well understood but information on the supply curve if fuzzy, then tradable allowances are probably better s if the supply and demand curves shift a lot but the external cost of a unit of pollution is fairly well b politics - accounted for , Pigouvian taxes are likely a better option - Tradable credits may be allocated by the government ( rather than auctioned ) 6 9...
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