Suppose that the government decides to issuetradable permits for a certain form of pollution.a. Does it matter for economic efficiency whether thegovernment distributes or auctions the permits?Why or why not?b. If the government chooses to distribute thepermits, does the allocation of permits amongfirms matter for efficiency? Explain.

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter11: Public Goods And Common Resources
Section11.2: Public Goods
Problem 2QQ
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Suppose that the government decides to issue
tradable permits for a certain form of pollution.
a. Does it matter for economic efficiency whether the
government distributes or auctions the permits?
Why or why not?
b. If the government chooses to distribute the
permits, does the allocation of permits among
firms matter for efficiency? Explain.

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