Final answer:
CoolU's approach to managing smoking by giving out a fixed number of smoking permits that can be traded is an example of a cap-and-trade system. This allows students to have economic incentives for reducing smoking while permitting the trade of pollution permits as a form of improved property rights.
Step-by-step explanation:
The allocation of smoking permits at CoolU and the allowance of trading them between students is an example of cap-and-trade. In a cap-and-trade system, a governing body sets a limit on the total amount of emissions (a cap) and allocates permits that allow holders to emit a certain amount of the pollutant. These pollution permits can then be bought and sold in a market, thus providing economic incentives for reducing emissions and promoting efficient allocation of resources.
Such systems aim to reduce the total emissions over time by decreasing the cap or the permitted amount of emissions allowed per permit in succeeding years, and they operate on the principle that firms or individuals who can reduce pollution at lower costs will sell their permits to those with higher costs of reduction, resulting in cost-effective pollution abatement. In CoolU's case, smoking is treated as the pollution that's being capped, and each student is allocated a certain number of marketable permits that they are allowed to trade.