Question

Consider the production of pesticide that pollutes a lake used by a trout farmer. A marketable

permit
A) creates an efficient outcome when the price of the permit is set equal to the external cost.
B) cannot result in the same outcome as when property rights are assigned to the pesticide
producer.
C) cannot result in the same outcome as when property rights are assigned to the trout farm.
D) cannot result in the same outcome as when the government imposes a Pigovian tax.
E) creates an efficient outcome when the price of the permits is set equal to the external benefit.

Answer 1

Marketable permits are a tool that can be used in market-oriented environmental policies. They work best when a few dozen or a few hundred parties are highly interested in trading. Tradable permits allow firms to emit a certain amount of pollution, and firms with more permits can sell them to other firms.

Step-by-step explanation:

Marketable permits are a tool that can be used in market-oriented environmental policies. They work best when a few dozen or a few hundred parties are highly interested in trading, such as oil refineries or electrical utilities.

Tradable permits allow firms to emit a certain amount of pollution, and firms with more permits can sell them to other firms. This system allows firms with lower costs of abatement to reduce pollution the most, while firms with higher costs can buy permits and abate less.