Question

Why do economists generally prefer market-based instruments (like taxes or permits) over Command-and-Control (CA

Q: Answer-Why do economists generally prefer market-based instruments (like taxes or permits) over Command-and...

Solution Market instruments taxes or permits enforce the equi-marginal principle. Firms with low Marginal Abatement Costs MAC will abate more pollution either to avoid the tax or to sell permits, and firms with high MAC will abate less either paying the tax or buying permits. This tradingoptimization process ensures that the total abatement burden is efficiently shared, achieving the desired environmental outcome at the minimum possible aggregate cost to society. CAC uniform standards typically violate this principle.