Part I: Indicate whether the statement as given is true/false/uncertain and expl

Question

Part I: Indicate whether the statement as given is true/false/uncertain and explain why. Points will be given for the explanation of your answer only. Write your answers as completely as possible.

1.Performance standards are preferable to technology standards in that they give some flexibility to firms in terms of achieving a given amount of emissions reduction.

2.Emissions taxes are preferable to tradeable emissions permits in that the revenue from taxes can be used to reduce other distortionary taxes (e.g., income taxes), leading to what is known as a double dividend for society.

3.If there are transactions costs in a tradeable permit market, the ultimate distribution of tradeable permits held by firms in the market will depend upon the initial allocation of permits.

4.All else equal, in the case of an ambient pollution problem, a cost effective regulatory scheme (either a tax or traceable permit system) will require firms with lower transfer coefficients to achieve a lower level of overall emissions compared to an otherwise identical firm with a higher transfer coefficient.

Explanation / Answer

1.

True

This is because performance based standards allow firms to choose among the available methods to comply with the standard and are cost effective for them.

2.

True

Taxes raise revenue along with curbing pollution. It is a win-win situation for the government.

3.

True

Increasing transaction costs are negatively correlated with permit allocations.

4.

Uncertain

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