If the government wanted to efficiently limit the emission of carbon monoxide by all firms to exactly 4 million tons it could
A) issue rights to pollute worth 4 million tons and let the firms trade those rights in a market.
B) appeal to firms' environmental conscience to pollute less.
C) subsidize production.
D) rely on the Coase Theorem.

Question

Quizplus · Accepted Answer

By issuing rights to pollute worth exactly 4 million tons, the government can ensure that emissions do not exceed the desired limit while allowing firms to trade rights in a market. This creates an incentive for firms to reduce emissions or to purchase additional rights to continue polluting. This approach is known as a cap-and-trade system and has been successfully implemented in cases of reducing pollution in various countries. Appeals to environmental conscience or subsidies are less effective in ensuring a definite reduction in emissions. The Coase Theorem may not be applicable in this situation as it requires clearly defined property rights and low transaction costs, which may not be the case with pollution emissions.

If the Government Wanted to Efficiently Limit the Emission of Carbon