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To achieve economic efficiency, each emitter should control its pollution until the marginal cost of controlling...

To achieve economic efficiency, each emitter should control its pollution until the marginal cost of controlling the last unit is equal to the marginal damage it causes. Would efficiency be achieved for each emitter under a tax system?

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Answer #1

No efficiency would not be achieved.the reason is this tax has lot of disadvantages as mentioned below

1 First and foremost the regulator needs to have information about MAC.Not only is it almost impossible but quite challenging and not stable at all.some speculation is always involved and we have to see the reaction of the polluter to know how far it is effective

2 To equalise control costs is not easily at all.further we have to estimate monetary value of various diseases and disadvantages caused by pollution.This is not easy at all

3 There must be different tax rates for different pollutants.and sources..further it falls more heavily on poor.Thus it is not equitable.Also it leds to distortion.

4 It involves large administrative costs

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