Download presentation

Presentation is loading. Please wait.

Published byDylan Gunn Modified over 3 years ago

1
Solution 2: Tradeable Permits Suppose we gave each company 30 pounds in tradeable permits, so Firm 1 must reduce by 20 and Firm 2 by 40. Firm 1 would be willing to sell 20 pounds of permits for $30, and those permits would be worth $60 to Firm 2. So Firm 1 would sell them.

2
Tradeable Permits: More Detailed Explanation If Firm 1 reduces by 20 pounds, its MC of reducing a little more is only $1/pound. If Firm 2 reduces by 40 pounds, its MC of reducing a little less is $4/pound. So Firm 1 could sell Firm 2 a pound of pollution permits for $2 and both would end up better off. Firm 1 would have to pay $1 extra for pollution control, and Firm 2 would get to pay $4 less. They would keep trading more and more permits until the MCs were equalized for the two firms. If Firm 1 sells 20 pounds of pollution permits to Firm 2, Firm 1s pollution control costs go up $30, Firm 2s fall by $60, and both firms would have MC=$2. They wouldnt trade any more because after 20, Firm 1 need them as much as Firm 2.

3
The Benefit of Smart Policy If Firm 1 reduces pollution by 40 pounds and Firm 2 reduces by 20 pounds, there is a gain of $30 in pollution control costs compared to when Firm 1 reduces by 20 and Firm 2 by 40. The same environmental goal of a 60-pound reduction is reached, but at lower cost.

Similar presentations

OK

19 Externalities The market tends to overproduce. Spillover CostsSpillover Benefits The market tends to underproduce.

19 Externalities The market tends to overproduce. Spillover CostsSpillover Benefits The market tends to underproduce.

© 2017 SlidePlayer.com Inc.

All rights reserved.

Ads by Google

Ppt on object-oriented technologies Ppt on hiv aids Ppt on shell structures pdf Ppt on nursing leadership and management Ppt on asymptotic notation of algorithms and flow Free ppt on job satisfaction Ppt on forward rate agreement notation Ppt on fibonacci numbers stocks Ppt on data collection methods statistics View ppt on android