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distributing marketable pesticide permits

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Suppose that the governmental wished to decrease the use of a pesticide that is leaking into water supplies in a watershed by 60% from current use levels.

Discuss the advantages and/or disadvantages of distributing marketable pesticide permits to each farm operating in the watershed equal to 40% of its current level of use of that pesticide, versus simply ordering each farm to reduce pesticide use to 40% of current levels under threat of heavy fines for non-compliance.

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Solution Summary

The pros and cons of distributing marketable pesticide permits are discussed.

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Answers:
Pollution permits are a combination of command and control and market-based approaches to the task of limiting pollution emissions. Polluters can bid for a permit that allows them to create a fixed amount of pollution. These permits can be resold: The government can gradually reduce the number (volume) of pollution permits available so that total pollution emissions can be controlled. The market for permits will reach a market-clearing price where the marginal benefit of pollution emissions is equal. Businesses can either buy permits or invest in technology to reduce pollution emissions - whichever approach saves them money. Gradually the total amount of pollution allowed can be reduced - as the stringency of pollution limits is tightened, so the value of permits may rise, they will be ...

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