Tradable permits that establish a maximum amount of pollution and then allow firms to trade pollution quota permits among them:
A)works most efficiently if the polluting industries are dominated by a large firm.
B)tend to work better than taxes but only when the government originally allocates the permits to the biggest polluters.
C)tend to not work because firms don't have an incentive to minimize their pollution.
D)tend to work better than taxes because firms with higher costs of eliminating pollution buy permits from firms with lower costs of eliminating pollution.

Question

Quizplus · Accepted Answer

Tradable permits tend to work better than taxes because they create an incentive for firms with higher costs of eliminating pollution to buy permits from firms with lower costs of eliminating pollution, thereby achieving the same level of pollution reduction at a lower overall cost. This assumes that the permits are allocated efficiently, without favoring any particular firm or industry.

Tradable Permits That Establish a Maximum Amount of Pollution and Then