Suppose there will be global catastrophe unless we hold total carbon dioxide emissions at or below 35 million tons per year. As a result, each person on Earth is allocated 10 pounds of untradable emissions permits per year. Why would this be an inefficient solution?
A) Flexibility is not desirable.
B) Transaction costs are very high.
C) Everybody has the same cost of emissions abatement.
D) Different people have different costs of emissions abatement.

Question

Quizplus · Accepted Answer

Allocating the same amount of emissions permits to each person does not take into account the fact that different people have different costs of emissions abatement. This can result in inefficient outcomes where some people may be willing to abate more emissions but are not given the opportunity to do so, while others may not be willing to abate as much but are forced to do so. This can lead to higher overall abatement costs and missed opportunities for cost-effective emissions reductions.

Suppose There Will Be Global Catastrophe Unless We Hold Total