Marketable Permits Essay Checker

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Moral objections to quota trade are common in public discussion. The underlying moral reasoning is often hard to extract from the public's rhetoric, and economists often claim that the objections are due to misunderstandings. In this paper we test experimentally one possible objection to trading emission rights: that selling pollution rights is objectionable because it involves trade in the right to do something wrong. The experiment is phrased in a neutral language to avoid invoking subjects’ prior attitudes to trading pollution permits. In the experiment, subjects earn money from using stickers that inflict losses on others. After the initial rounds, the use of stickers is limited and the rights to use stickers are tradable. We observe no reluctance to trade these rights compared to a control treatment with identical incentives but no externalities. In a final stage, subjects vote on whether stickers should be tradable or not. Subjects in both treatments are almost unanimous in the support to trade. A majority of third party subjects asked to judge the experimental procedures, however, indicated that the market made the use of stickers seem more moral. A post experiment survey showed that our subject pool had a negative attitude to real life trade of emission quota. The experiment finds no indication that this attitude is due to a concern over tradable quotas legitimizing morally objectionable actions.

$290$553Points:0.8 / 1Explanation:In order for a Frm to be willing to sell one of its permits, the price it receives for the permit must be larger than the cost of eliminating the unit of pollution the permit represents: Each Frm can use its initial allocation of two permits to avoid eliminating the third and fourth units of pollution, which are the mostly costly units to eliminate. This leaves eachFrm, before buying or selling permits, with just having to eliminate the Frst two least costly units of pollution. If a Frm wants to sell one of its permits, it will then have to eliminate three units of pollution. Given that the cost of eliminating the third unit of pollution is $110 for Frm Y and $180 for Frm X, both Frms will be willing to sell one of their permits at any price above $180.Suppose the the government has set the trading price of a permit at $136 per permit.Complete the following table with the action each Frm will take at this permit price, the amount of pollution each Frm will eliminate, and the amount it costs each Frm to reduce pollution to the necessary level. If a Frm is willing to buy two permits, assume that it buys one permit from each of the other Frms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.) FirmInitial Pollution PermitAllocationActionFinal Amount of PollutionEliminatedCost of PollutionReduction(Units of pollution)(Units of pollution)(Dollars)FirmX2Don’t buy/sell 2215FirmY2Sell one permit 3235Firm Z2Buy one permit 1650Points:1 / 1Close Explanation

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