When the government issues marketable permits
A)each firm buys or sells permits until its marginal benefit from polluting equals the market price of a permit.
B)firms that have a low marginal cost of reducing pollution sell their permits, and firms that have a high marginal cost of reducing pollution buy permits.
C)the incentive to pollute is greater than when the government sets emission charges.
D)the price at which firms buy and sell permits is set by the government.
E)firms that have a high marginal cost of reducing pollution sell their permits, and firms that have a low marginal cost of reducing pollution buy permits.

Question

Quizplus · Accepted Answer

Marketable permits allow firms with higher costs of reducing pollution to buy permits from firms with lower costs of reducing pollution. This creates a market-based incentive for pollution reduction, as firms will buy permits if it is cheaper than reducing their own pollution and sell permits if it is more expensive than reducing their own pollution. This leads to an efficient allocation of pollution reduction efforts across firms.

When the Government Issues Marketable Permits