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If the location of emissions affects concentration of a pollutant at a particular location, describe how...

If the location of emissions affects concentration of a pollutant at a particular location, describe how optimal ambient taxes differ from optimal emission taxes imposed when all areas are equally affected by emissions.

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Answer #1

Optimal ambient tax sets a limit on air and water quality levels but the emission taxes limit the pollutant for a lower ambient quality for an area affected by emission equally. Ambient taxes are more achievable goals but difficult to enforce because reason of pollution can be away from the location which involves a high transactional cost. Optimal emission taxes are a relative for ambient quality based on how such emissions affect quality in a particular location.Emission taxes are more incentive based control over the pollution , but in the other case firms will pay penalties only if the emission exceeds the ambient limits.

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