Question

If you were a producer which method of pollution control would you support: government standards or the auction of pollution rights by government? Why? What are the benefits and costs of an auction vs. government standards?

Answer 1

                        Pollution control has been regarded as one of the essential acts of the government in the current global world. There are various ways by which government does this act of which setting of the government standards and the auction which gives polluting rights to the producer are the two major methods of pollution control. In the first case, the government would set the pollution standards in an economy and any violation of the same would lead to penalization of the producer who has committed the violation. In the latter case, the producer would have a basic standard of pollution index in the market and above that level, the producer would be allowed to enjoy a certain next level of pollution standard which would be under auction from the government and once the producer gets the auction rights, then the same can enjoy anther level of pollution rights in the nation.

                        In the given situation, the auctioning method is more advantageous as we look the same from the producer perspective. From the economic and government perspective, the above method is disadvantageous as it would cause an additional pollution burden on the same. From the producer perspective, it can be seen that many of the production methods are polluting in nature and a direct curb on the production method would result in losses for the firm. There are certain production methods which could not be replaced with the existing technology and thus causes a pollution effect that may be above the standards that are being set by the government. It is in those cases that the introduction of auctioning would help the producers to a certain extent.

                     

                        Here, although there is a loss in the form of cost of owing an auction, the production method of the firm could be maintained in the similar stage which could bring in cost benefits to the firm as a change to the same would cause the firm to invest new methods of production which could cause a huge cost burden on the firm. Apart from the cost burden, the burden of training the work force to deal with the new situations would also be high. Thus, all of these are major effects that could be caused when a government sets a standard on the pollution effects in an economy and thus an auctioning would be more advantageous from the producer perspective of maintaining the pollution standards in an economy.