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Suppose that the government decides to issue tradable permits for a certain form of pollution. a. Does it matter for economic efficiency whether the government distributes or auctions the permits? Why or why not? b. If the government chooses to distribute the permits, does the allocation of permits among firms matter for efficiency? Explain.

Chapter 10, Problem 8

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QUESTION:

Suppose that the government decides to issue tradable permits for a certain form of pollution.

a. Does it matter for economic efficiency whether the government distributes or auctions the permits? Why or why not?

b. If the government chooses to distribute the permits, does the allocation of permits among firms matter for efficiency? Explain.

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QUESTION:

Suppose that the government decides to issue tradable permits for a certain form of pollution.

a. Does it matter for economic efficiency whether the government distributes or auctions the permits? Why or why not?

b. If the government chooses to distribute the permits, does the allocation of permits among firms matter for efficiency? Explain.

ANSWER:

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That the government decides to issue tradable permits for a certain form of pollution.

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