Tradable allowances are ______ to Pigouvian taxes when the position of the supply curve is ______, making it difficult to know the exact size of the tax.
A) superior; unknown
B) superior; known
C) inferior; unknown
D) inferior; known

Question

Quizplus · Accepted Answer

Tradable allowances are preferred to Pigouvian taxes when the position of the supply curve is unknown, making it difficult to know the exact size of the tax. Tradable allowances provide certainty about the environmental outcome while allowing the market to determine the cost of achieving that outcome. This is superior to a Pigouvian tax in a situation where it is difficult to know what the optimal level of taxation is.

Tradable Allowances Are ______ to Pigouvian Taxes When the Position