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    advantages and disadvantages of marketable permits

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    What are the advantages and disadvantages of marketable permits compared to emissions fees?

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    Regulations such as emissions fees have costs for some and benefits for others. Efficient regulations only exist where the total benefits to some people exceed the total costs to others. When pollution is limited, it puts constraints on industry which raises costs, causing inefficiency in the market. The supply curve shifts inward, reducing output and increasing prices. This is clearly not in the best interest of society, unless the pollution being reduced was costing society more than the loss of this efficient market outcome.

    Regulators often find that they have overlooked the power of the free market in their attempts to reduce pollution. For example, the Clean Water Act mandated reductions in many types of water-borne pollutants, because people were suffering from acutely polluted water. ...

    Solution Summary

    Advantages and disadvantages of marketable permits and market-based pollution reductions are examined. The expert compares the emission fees.