Which of the following are true of tradeable pollution permits?
(i) they will be sold by firms that can reduce pollution at low costs
(ii) the initial allocation of pollution permits does not matter
(iii) they are similar to using Pigovian taxes
A)(i), (ii) and (iii)
B)(iii) only
C)(ii) and (iii) only
D)(i) and (ii) only

Question

Quizplus · Accepted Answer

(i) is true because firms that can reduce pollution at lower costs will have more permits to sell, creating competitive incentives for other firms to also reduce their pollution levels.
(ii) is true because in the long run, the market will adjust to the allocation of permits through buying and selling, ensuring that the overall emissions cap is met.
(iii) is true because both tradeable pollution permits and Pigovian taxes provide economic incentives for firms to reduce their pollution levels.

Which of the Following Are True of Tradeable Pollution Permits