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What is the difference in costs between command and contorl and tradable allowances?

What is the difference in costs between command and contorl and tradable allowances?

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Expert Solution

Command and control policies require all firms to reduce pollutants by a specific quantity whereas tradable allowances allow some firms to pollute more than others by trading for pollution rights.

Tradable allowances are a means of forcing companies that cause environmental damage , either as a result of pollution or in other form , to ay a form of compensation. They have no choice , either they can adopt more efficient or cleaner production method or they can buy extra allowances. The tradeaility of allowances means that the potential environmental damage is limited by those companies that are able to do so at the lowest possible cost.

Command and control regulation requires that firms increase their costs by installing anti-pollution equipment, firms are required to take social costs into account. Command and control regulation offers no incentive to improve the quality of enviroment beyond the standard set a particular law.

Rahul Sunny answered 2 years ago
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