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.
Added by Christopher G.
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In terms of economic efficiency, it does not matter whether the government distributes or auctions the permits. This is because the tradable permits system allows for the market to determine the most efficient allocation of pollution rights. Firms that can reduce Show more…
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