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The Pollution Game: A Classroom Exercise Demonstrating the Relative Effectiveness of Emissions Taxes and Tradable Permits

21 Pages Posted: 7 Jul 2009  

Jay R. Corrigan

Kenyon College - Department of Economics

Date Written: June 17, 2009

Abstract

This classroom exercise illustrates the strengths and weaknesses of various regulatory frameworks aimed at internalizing negative externalities from pollution. Specifically, the exercise divides students into three groups - the government regulatory agency and two polluting firms - and allows them to work through a system of uniform command-and-control regulation, a tradable emissions permit framework, and an emissions tax. Students have the opportunity to observe how flexible, market-oriented regulatory frameworks can outperform inflexible command-and-control. More importantly given the ongoing debate about how best to regulate carbon dioxide emissions, students can also observe how the introduction of abatement-cost uncertainty can cause one market-oriented solution to outperform another.

JEL Classification: A29, Q59, Q52, Q53

Suggested Citation

Corrigan, Jay R., The Pollution Game: A Classroom Exercise Demonstrating the Relative Effectiveness of Emissions Taxes and Tradable Permits (June 17, 2009). Available at SSRN: https://ssrn.com/abstract=1430655 or http://dx.doi.org/10.2139/ssrn.1430655

Jay R. Corrigan (Contact Author)

Kenyon College - Department of Economics ( email )

Gambier, OH 43022
United States
740-427-5281 (Phone)
740-427-5276 (Fax)

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