Question

Suppose that policy makers desire to reduce carbon emissions. Briefly compare and contrast command-and-control regulations with a corrective tax as a way to reduce carbon emissions.

Answer 1

Command and control regulations :
1. This type of regulation defines the way/process in which a firm would be allowed to operate(control) as well as define the numbers(or amount) that the firm is allowed to operate with, keeping the interests of the global environment in concern.
2. Regulation such as this is generally much more difficult to implement and maintain.
3. Governments get no economic returns from simply regulating firm behaviors.
4. It is easier to mandate a government control and command regulation, if the application is not taken into account.

Corrective tax :
1.To account for negative externalities, e.g. global warming as a cost incurred to a third party for a firm's economic transaction, governments generally increase the cost of producing goods or services while producing the so called negative externality.
2. A corrective tax gives more economic incentives to firms hence, is a relatively more reliable process from command and control regulation.
3. Governments stand to benefit, as corrective taxes provide revenues.
4. It is very difficult to put a number to the negative externality so that the private cost and social cost can be termed as equal.