Environmental and Nat Resources (1)

Environmental and Nat Resources (1) - Permits What are...

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Permits What are permits? Marketable or tradable discharge allowances Traded in a commodities-type market Why buy permits? To avoid cleanup Willingness to Pay (WTP) for permits = cost of avoiding cleanup
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Supply of Permits Supply of Permits = Marginal Damage (MD) caused by pollution Must balance the number of permits with the cost of allowing pollution Few permits means little environmental damage will be allowed Due to the market system, under perfect competition the desired pollution level will be attained at a minimum cost
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Price of Permits Quantity of Permits Q p (Optimal amount of permits) P p Graph of Permits MSC = Supply of Permits Demand for Permits
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Comparing Permits and Effluent Fees When the MC and MB curves are known with certainty The fee charged will equal the cost of the permit Will yield the same result Fees go to the government Used to replace distorted income and corporate taxes Permits are traded in a market No money available to replace distorted taxes
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Comparisons When There are Uncertainties on the Cost Side With a steep (inelastic) MB curve Price is less important
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Environmental and Nat Resources (1) - Permits What are...

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