Abatement

Why is command and control not effective for more than one firm?

Firms are not the same; higher or lower MAC makes it not far to split 50/50; inefficient firms abate a lot

Cap and trade vs tax - which do firms prefer? Which do economists prefer?

Cap and trade - firms; you are giving away permits for free

Tax - economists

What if we set the wrong Pigouvian tax?

Less MB

What if we set the wrong quantity in cap and trade?

MAC is usually higher lower than what we think it is; MACguess will lead to less abatement than we would want = less MB, more DWL

How to find DWL?

Flag - where we are pointing towards the optimum

When is cap and trade vs taxes better?

Cap and trade is better when the MD is steeper than the MC of abatement - we care ab a specific level of abatement

Abatement taxes are better when MD is flatter than MC of abatement - we care ab costs more