Question

Problem 1: True or False Please clearly label each statement True or False and explain your reasoning. a) Price-based instruments like taxes are always better than quantity-based instruments. b) Vintage differentiated regulation can undermine cost-effectiveness by creating a bias against new capital investments. c) The market can always be relied upon to achieve dynamically efficient extraction of a nonrenewable resource.

Answer 1

a) Price-based instruments like taxes are continually higher than quantity-based instruments. False.Uncertainty within the value curve will lead quantity-based instruments to surpass price-based instruments. in addition, even in an exceedingly case wherever we would favor a price-based instrument, correlation between advantages and prices could push us towards affirmative a amount-based instrument to such a degree that a quantity instrument is favored.

b) Vintage-differentiated regulation will cut back cost-effectiveness and even cause higher levels of waste product emissions than would occur within the absence of regulation.'Grandfathering' rules (setting rules supported a previous year’s emissions) will undermine cost-effectiveness by making a bias against new capital investments. True.

c) Nationwide pollution taxes surpass performance standards in addressing 'hot spots' as a result of these taxes encourage corporations to reduce total abatement prices, not like standards. False. Using a nationwide environmental regulation to deal with pollutants with native impacts isn't generically economical. This policy alternative is an example of (building a quick train to the incorrect station) or that specialize in cost-effectiveness at the expense of potency. In general, environmental rules ought to be applied at the spatial level of the damages incurred or account for heterogeneousness (composed of parts of different kind)  in damages across space. Note: we have a tendency to accepted all well-reasoned responses to the current question.