Lecture 26 — Permit Allocation & Policy Choice

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Last updated 2:11 AM on 4/27/26
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12 Terms

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How are permits allocated

Free distribution vs auction

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Uniform distribution

Based on historic pollution

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Concern with allocation

Market power

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Auctioning permits

Creates price and identifies buyers/sellers

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If all permits are sold

Equivalent to a tax

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Pros of permits

Cost effective

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Cons of permits

Market power

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When MDC is steep

Prefer permits (quantity certainty)

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When MAC is steep

Prefer taxes (cost certainty)

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Technological advances

Policies differ in incentives to innovate

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Strongest innovation incentives

Pollution taxes

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Weakest incentives

Free permits