Question - The graph below is of aggregate marginal damage and aggregate marginal abatement costs associated with some pollutant. Suppose a regulator wishes to control emissions with a competitive transferable emissions permit policy.
(a) Identify the efficient supply of emissions permits. What will be the price of permits if sources trade them competitively?
(b) Identify the aggregate value of all emission permits. Under what circumstances does this value accrue to the pollution sources? Under what circumstances does this value accrue to the government?