A government is considering three options to reduce pollution by certain amount:
(I) Command the firms to adopt the same technology in production so that the targeted pollution is achieved.
(II) Tax the firms on the pollution they produce and set the tax so that the targeted pollution is achieved.
(III) Allocate pollution permits to firms so that the targeted pollution is achieved, and allow the firms to trade the permits in a pollution permit market.
Which option is better in terms of social efficiency?

Question

A government is considering three options to reduce pollution by certain amount:

(I) Command the firms to adopt the same technology in production so that the targeted pollution is achieved.

(II) Tax the firms on the pollution they produce and set the tax so that the targeted pollution is achieved.

(III) Allocate pollution permits to firms so that the targeted pollution is achieved, and allow the firms to trade the permits in a pollution permit market.

Which option is better in terms of social efficiency?

Accepted Answer

(II) and (III) are equivalent but are both better than (I)

Answer

(II) is better than (I) and (III)

Answer

(I) is better than (II) and (III)

Answer

(I) and (II) are equivalent but are both better than (III)

Answer

(III) is better than (I) and (II)

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A government is considering three options to reduce pollution by certain amount:...

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