ECON 2100 Chapter 10: ECON 2100 Chapter 10.pdf
7 Jan 2015
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Taxes, subsidies and discharge permits are sort of decentralized, but not so much that the government can"t still step in and adjust things like the tax rates. Gov"s set the emission level and the polluting industries have no choice but to either meet the standard or face penalty. The parties involved have more of a vested interest in finding a solution, since they are the ones producing and also the ones suffering the externalities. The ones involved best know the magnitude of the damages and what the abatement costs should be, so therefore they can find the best solution. Note: property rights must have been defined before these processes can occur. Making the polluters liable for the damages to the environment that they cause. The main purpose of liability laws is not just to compensate people, but to get would-be polluters to make careful decisions. Effects of liability laws are to internalize environmental damages that were external beforehand.
