Consider an emission tax and an emission standard as regulatory policies. a. Which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC? Assume the policy (that is, the tax rate or the standard), cannot be changed once the innovation has occurred. Illustrate your answer using any relevant diagrams. b. Now suppose the policy (that is, the tax rate or the standard), can be changed optimally by the government once the innovation has occurred. Show the optimal tax rates and emission standards before and after the innovation on your diagrams. Under this new assumption, which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC?
1. Consider an emission tax and an emission standard as regulatory policies. a. Which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC? Assume the policy (that is, the tax rate or the standard), cannot be changed once the innovation has occurred. Illustrate your answer using any relevant diagrams. b. Now suppose the policy (that is, the tax rate or the standard), can be changed optimally by the government once the innovation has occurred. Show the optimal tax rates and emission standards before and after the innovation on your diagrams. Under this new assumption, which policy, an emission tax or an emission standard, provides a greater incentive to the polluters to undertake research and development to reduce MAC?
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