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The government is considering two policies for reducing pollution. One policy requires all firms to limit...

The government is considering two policies for reducing pollution. One policy requires all firms to limit their pollution, to a threshold determined by the government. An alternative policy allows some a firm to exceed their threshold if another firm agrees to reduce its pollution by the same amount.

True or false: The first policy (requiring all firms to stick to their threshold) is economically more efficient than the second policy (allowing firms to trade the rights to pollute).
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