Assume there are two polluting Firms A and B in the country with Marginal Costs of Pollution Abatement or Pollution Reduction MCA and MCB respectively. MCA < MCB. In the absence of any pollution policy each Firm is producing 200 tons of pollution. The government plans to cut down the total pollution by half. The government is considering two options: Option 1: Establish a standard obliging each Firm to cut down the pollution by half. Option 2: Allocate 100 pollution permits to each Firm, with each permit allowing 1 ton of pollution. These permits are tradable. a. Which of the two options you will recommend to the government? Why? Support your answer by drawing a figure justifying and explaining your choice. b. What are the inconveniences of such a choice at local level?
Assume there are two polluting Firms A and B in the country with Marginal Costs of Pollution Abatement or Pollution Reduction MCA and MCB respectively. MCA < MCB. In the absence of any pollution policy each Firm is producing 200 tons of pollution. The government plans to cut down the total pollution by half. The government is considering two
options:
Option 1: Establish a standard obliging each Firm to cut down the pollution by half.
Option 2: Allocate 100 pollution permits to each Firm, with each permit allowing 1 ton of pollution. These permits are tradable.
a. Which of the two options you will recommend to the government? Why? Support
your answer by drawing a figure justifying and explaining your choice.
b. What are the inconveniences of such a choice at local level?
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