Chapter 18, Problem 4E

Four firms located at different points on a river dump various quantities of effluent into it. The effluent adversely affects the quality of swimming for homeowners who live downstream. These people can build swimming pools to avoid swimming in the river, and the firms can purchase filters that eliminate harmful chemicals dumped in the river. As a policy adviser for a regional planning organization, how would you compare and contrast the following options for dealing with the harmful effect of the effluent:

a. An equal-rate effluent fee on firms located on the river.

b. An equal standard per firm on the level of effluent that each can dump.

c. A transferable effluent permit system in which the aggregate level of effluent is fixed and all firms receive identical permits.