Buyer or seller of marketable permit?

Buys permits

Doesn’t buy or

Sells permits for

Buys permits

for 50 tons

sell permits

100 tons

for 50 tons

TABLE 12.4 How Marketable Permits Work

Another application of marketable permits occurred when the U.S. government amended the Clean Air Act in

1990. The revised law sought to reduce sulfur dioxide emissions from electric power plants to half of the 1980

levels out of concern that sulfur dioxide was causing acid rain, which harms forests as well as buildings. In this

case, the marketable permits the federal government issued were free of charge (no pun intended) to

electricity-generating plants across the country, especially those that were burning coal (which produces

sulfur dioxide). These permits were of the “shrinkable” type; that is, the amount of pollution allowed by a given

permit declined with time.

Better-Defined Property Rights
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