3 firms a, b, and c. A emits 15 units of pollution @ $1 cost to reduce pollution. B. emits 30 units @ $2 reduction cost. C. 45 units at $3 cost of reduction. Policy makers are seeking to cut pollution in half (90 to 45 units). How to go about it in a fair efficient way. 1. the dirtiest producer cleans firs,t all 45 units, 2. each firm cuts its own pollution in half, thus reducing overall pollution to 45 units. 3. 45 tradable pollution permits are issued. Questions: 1. Which of these alternatives is the fairest, why? 2. Which is the most efficient alternative? 3. If efficiency is desirable, why must the permits be tradable?
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What do you think?
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