Which of the following is necessary for a system of marketable pollution permits to lead to beneficial trades between polluting companies?
A) Companies must have common abatement costs.
B) There must be differences in abatement costs between companies.
C) Company owners must have a social conscience and must be devoted to pollution abatement.
D) The government must direct companies toward beneficial trades.

Question

Quizplus · Accepted Answer

For a system of marketable pollution permits to lead to beneficial trades, there must be differences in abatement costs between companies. If all companies had the same abatement costs, there would be no economic incentive for them to trade permits. Companies with lower abatement costs would have no reason to purchase permits from companies with higher abatement costs, and there would be no overall reduction in pollution as a result of the permit system. Differences in abatement costs create opportunities for mutually beneficial trades between companies, leading to a more efficient allocation of pollution reduction efforts.

Which of the Following Is Necessary for a System of Marketable