The Swedish Environmental Protection Agency investigates how emissions of an environmentally hazardous substance from an industrial sector should be regulated, either through a tax on the emissions or through a quantitative regulation (limit value). As this is a new substance (new substance), knowledge of the level of environmental damage and the costs of reducing emissions is uncertain. In more technical terms: the regulatory authorities do not have complete information on the positions on either the dD / dM curve (marginal damages) or the MAC curve (marginal abatement costs). a) Explain and show graphically whether - and if so how - the uncertainty about the position of the MAC curve affects the choice between regulating emissions with a tax or limit value from a socio-economic efficiency perspective. b) Explain and show graphically whether - and if so how - the uncertainty about the position of the dD / dM curve affects the choice between regulating emissions with a tax or limit value based on a societal
The Swedish Environmental Protection Agency investigates how emissions of an environmentally hazardous substance from an industrial sector should be regulated, either through a tax on the emissions or through a quantitative regulation (limit value).
As this is a new substance (new substance), knowledge of the level of environmental damage and the costs of reducing emissions is uncertain. In more technical terms: the regulatory authorities do not have complete information on the positions on either the dD / dM curve (marginal damages) or the MAC curve (marginal abatement costs).
a) Explain and show graphically whether - and if so how - the uncertainty about the position of the MAC curve affects the choice between regulating emissions with a tax or limit value from a socio-economic efficiency perspective.
b) Explain and show graphically whether - and if so how - the uncertainty about the position of the dD / dM curve affects the choice between regulating emissions with a tax or limit value based on a societal
economic efficiency perspective.
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