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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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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 ...

Solution Summary

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

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