added new regulations on insurance companies and a mandate that all individuals will obtain health

insurance by 2014. The following Work It Out feature further explains voter incentives and lobbyist influence.
440 18 • Public Economy

WORK IT OUT

Paying To Get Your Way
Suppose Congress proposes a tax on carbon emissions for certain factories in a small town of 10,000 people.

Congress estimates the tax will reduce pollution to such an extent that it will benefit each resident by an

equivalent of $300. The tax will also reduce profits to the town’s two large factories by $1 million each. How

much should the factory owners be willing to spend to fight the tax passage, and how much should the

townspeople be willing to pay to support it? Why is society unlikely to achieve the optimal outcome?

Step 1. The two factory owners each stand to lose $1 million if the tax passes, so each should be willing to spend
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