Economic incentives are designed to make individual self-interest coincide with social interest.According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?
A)rewarding environmental groups for monitoring the activities of private firms that produce products which generate pollution
B)imposing quantitative limits on the amount of pollution and imposing a penalty for non-compliance with these limits
C)requiring the installation of specific pollution control devices
D)instituting a system of tradable emission allowances

Question

Quizplus · Accepted Answer

Instituting a system of tradable emission allowances uses economic incentives to reduce pollution. This system allows firms to buy or sell permits that allow them to emit a certain amount of pollutants. Firms can either reduce their own emissions or purchase permits from other firms that have reduced their emissions more than necessary. This creates a market-based incentive to reduce pollution as firms that can reduce their emissions more cheaply will do so, while those that cannot will purchase permits from others. This system has been shown to be effective in reducing pollution at a lower cost than other methods such as imposing quantitative limits or requiring specific pollution control devices.

Economic Incentives Are Designed to Make Individual Self-Interest Coincide with Social