Question

Pollution rights may be traded if

A. polluters try to hide pollution.

B. administrators are uncertain about Pigouvian taxes.

C. there is no market for pollution.

D. pollution is harmless.

Answer 1

Answer - administrators are uncertain about pigouvian taxes

Reason - pollution rights are basically a ceiling limit provided to companies in which they can emit pollutants upto a certain level and if they have some remaining limit into their ceiling provided to them, it can be traded.

This situation will arrive only when administrators are uncertain about pigouvian tax. Pigouvian tax is a tax charged from the polluters for effecting environment. In other words the more pollution is emmited the more tax will be charged. Because pollution creates a negative externality where the people who are not responsible for the reasons behind the pollution are also suffering from it.

So trading of pollution rights is done in an uncertainty of pigouvian tax.

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