For any given demand curve for pollution, a regulator can achieve the same level of pollution with either a Pigovian tax or by allocating tradable pollution permits.

Question

Quizplus · Accepted Answer

Both Pigovian taxes and tradable pollution permits aim to internalize the external cost of pollution and achieve the socially optimal level of pollution. Therefore, a regulator can achieve the same level of pollution with either approach. However, the two approaches may differ in terms of their administrative costs, distributional effects, and potential for market power abuse.

For Any Given Demand Curve for Pollution, a Regulator Can