Question

Suppose an industry generates a negative externality such as carbon emissions, and the possible methods to internalize the externality are command-and-control policies, corrective taxes, and tradable pollution permits. if economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce carbon emissions in the future, they would likely rank them in the following order (from most favored to least favored): .

Rank the methods for internalizing a negative externality based on efficiency, ease of implementation, and industry incentive.
A) Corrective taxes, Tradable pollution permits, Command-and-control policies
B) Tradable pollution permits, Corrective taxes, Command-and-control policies
C) Command-and-control policies, Corrective taxes, Tradable pollution permits
D) Corrective taxes, Command-and-control policies, Tradable pollution permits

Answer 1

Economists typically prefer corrective taxes, followed by tradable pollution permits, and finally command-and-control policies for internalizing negative externalities such as carbon emissions, with priorities on efficiency, ease of implementation, and future incentives for emission reduction.

Step-by-step explanation:

When analyzing methods for internalizing a negative externality such as carbon emissions, economists consider efficiency, ease of implementation, and the incentive for industry to reduce emissions further. Economists generally prefer corrective taxes because they can be aligned with the external costs imposed on society, leading to a socially optimal level of production and pollution.

Next favored are tradable pollution permits, which create a market for emission rights and allow for flexibility and cost-effectiveness in pollution reduction. Command-and-control policies are typically ranked last due to their inflexibility and potential for inefficiency, despite sometimes being easier to implement.

To internalize negative externalities effectively, economists would likely rank the methods as:

1. Corrective taxes
2. Tradable pollution permits.
3. Command-and-control policies