Question

c. Discuss how an economist might consider the differences in incentives, efficiency and costs associated with the use of command and control (technology standards), Pigouvian taxes and tradeadle emissions permits to deal with issues of air pollution from factories?

Answer 1

Impact on environment is very adverse due to the industrial growth. Thus, it is very important to protect environment along with sustainable industrial growth. This can be acheived using various policies in place. These policies may take a form of incentives or taxes.

Suppose, your firm gets carbon credits which can be encashed if your factory release lesser carbon, then will you try and earn some carbon credits? The rational answer should be yes. This is an example of incentive which can be in place to curb air pollution. There could be incentives based on the best technologies used which reduces emission.

Similarily a tax applied on higher emissions will be another way to do the same thing. This will also make you emit less carbon into the environment. This is more of a command based.

In the first approach there is an incentive related while second approach is more of a penalty.

First approach is more desirable and efficient but involves costs. It can be said that first approach is more of a control based while second approach is command based.