To achieve social efficiency, the size of an effluent tax should be based on:

Question

Quizplus · Accepted Answer

The size of an effluent tax should be based on the external cost created by the pollutant in order to achieve social efficiency. This means that the tax should be set at a level that reflects the cost to society of the pollution, including any health or environmental impacts. By internalizing these costs, firms have an incentive to reduce their pollution levels to the socially optimal level.

To Achieve Social Efficiency, the Size of an Effluent Tax