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Marketable emissions credits and economic efficiency

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Briefly explain how marketable emission credits add to overall economic efficiency, compared to across-the-board limitations on maximum discharges of air pollutants by firms

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The solution discusses marketable emissions credits and economics efficiency.

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Most people agree that there are some circumstances where the market fails and some sort of regulation is necessary. But which failures are serious enough to warrant intervention is very contentious. Regulations, like any other coercion, 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. This in effect shifts the supply curve inward, ...

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