A number of coal burning steam locomotives pass by several largely populated towns each day spewing sulfur dioxide. Each coal burning steam locomotive is owned by a different company. a. Explain how the Coase theorem could work to achieve the optimal level of sulfur dioxide emissions. Explain how the achievement of the optimal level of sulfur can be hindered in reality for this particular problem. b. Assume that the true marginal abatement cost curve for all firms is not known to a regulator. If the marginal damages from sulfur dioxide is fairly constant at all levels of sulfur dioxide levels, what is the better type of policy to implement, a quota or a tax on sulfur dioxide emissions? Give a brief explanation of why you have chosen that particular policy. Use a graph to support your explanation.
A number of coal burning steam locomotives pass by several largely populated towns each day spewing sulfur dioxide. Each coal burning steam locomotive is owned by a different company.
a. Explain how the Coase theorem could work to achieve the optimal level of sulfur dioxide emissions. Explain how the achievement of the optimal level of sulfur can be hindered in reality for this particular problem.
b. Assume that the true marginal abatement cost curve for all firms is not known to a regulator. If the marginal damages from sulfur dioxide is fairly constant at all levels of sulfur dioxide levels, what is the better type of policy to implement, a quota or a tax on sulfur dioxide emissions? Give a brief explanation of why you have chosen that particular policy.
Use a graph to support your explanation.
Step by step
Solved in 3 steps with 1 images
