26 - Efficiency The First Equimarginal Principle Efficiency...

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Efficiency: The First Equimarginal Principle Efficiency: The First Equimarginal Principle : efficient level of pollution abatement occurs when the marginal costs of pollution control equal the marginal benefits of pollution control. Or, can view is as the marginal damages of pollution equal the marginal benefits of polluting. Mankiw #3: rational agents think at the margin.
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Cost-Effectiveness: The Second Equimarginal Principle Cost-Effectiveness: The Second Equimarginal Principle: cost-effective (least cost) way of abating pollution occurs when the marginal costs of pollution abatement for each firm are equalized. This is the equivalent of abating the cheapest unit of pollution first, the next cheapest second, and so on until required level of abatement is achieved. When abatement is discrete, rather than continuous, these marginal conditions may not exactly hold, but the idea is the same. Abate the least cost until until the level of desired abatement is reached.
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