Which Of The Following Policies Is Not An Example Of A Command-and-control Policy?

Regulation

The government tin respond to externalities through command-and-command policies or market-based policies.

Learning Objectives

Draw the role of government regulation in addressing externalities

Key Takeaways

Key Points

Command-and-command regulation requires or forbids certain behaviors with the goal of addressing an externality.
Regulation is difficult to implement and enforce correctly.
Command-and-control regulation can come in the form of government-imposed standards, targets, procedure requirements, or outright bans.
The allocation of tradable permits is a marketplace-based policy that has been primarily used to combat pollution.

Key Terms

Negative Externality: A detremental effect suffered by a party due to a transaction it was not a part of.

The government can respond to externalities in 2 ways. The government tin use command-and-control policies to regulate behavior straight. Alternatively, it tin can implement market-based policies such as taxes and subsidies to incentivize private decision makers to change their ain beliefs.

Command-and-control regulation tin come in the form of government-imposed standards, targets, process requirements, or outright bans. Such measures make sure behaviors either required or forbidden with the goal of addressing the externality. For example, the government may brand it illegal for a visitor to dump certain chemicals in a river. By doing so, the government hopes to protect the surround or other companies or individuals that use the river that would otherwise endure a negative impact.

No Smoking: The prohibition of smoking in sure areas is a regulation designed to reduce the negative externalities suffered by non-smokers when they are effectually smokers.

In do, implementing regulation effectively is hard. It requires the regulator to have in-depth noesis of a certain industry or sphere of economic activity. If done incorrectly, regulation can introduce inefficiency. For instance, if the government makes information technology illegal to dump in the river, the companies and their customers may suffer because the products must be produced using less efficient methods. On the other hand, if the regime allows too much to be dumped in the river, they have failed to mitigate the negative externality.

If the regime is unsure of how to effectively regulate the market, information technology should seek other methods of mitigating the externality. Advocates of market-based policies for reducing negative externalities bespeak to the difficulty of creating and enforcing effective regulation for reasons why the government should create systems of incentives and disincentives instead of using the force of regulation.

Revenue enhancement

Corrective taxes incentivize economic actors to reduce the production of goods or services generating negative externalities.

Learning Objectives

Depict the role of taxes in addressing externalities

Key Takeaways

Key Points

A corrective tax is a market-based policy option used by the authorities to accost negative externalities.
Taxes increase the cost of producing goods or services generating the externality, thus encouraging firms to produce less output.
The tax should be set up equal to the value of the negative externality, which is very difficult to practice in practice.
Corrective taxes increase efficiency and provide the government with revenues too.

Central Terms

Pigovian tax: A tax applied to a market activity that is generating negative externalities (costs for somebody else).

Taxes are a market-based policy option bachelor to the government to address externalities. A corrective revenue enhancement (as well called a Pigovian revenue enhancement) is applied to a market activity that is generating negative externalities (costs for a third party). The taxation is gear up equal to the value of the negative externality and provides incentives for allocation of resource closer to the social optimum.

In the instance of negative externalities, the social cost of an activeness is greater than the individual cost of the activity. In such a case, the market outcome is not efficient and may lead to overproduction of the good. Taxes brand it more expensive for firms to produce the skilful or service generating the externality, thus providing an incentive to produce less of it. Equally the figure demonstrates, a tax shifts the marginal private cost curve upwardly. In response, producers change the output to the socially-optimum level.

Cosmetic Tax: A taxation shifts the marginal individual toll bend up by the amount of the tax. This gives producers an incentive to reduce output to the socially optimum level.

Take environmental pollution as an example. The private price of pollution to a polluter is less than its social cost. If the government levies a taxation on pollution, it increases the polluter's private cost. The polluter now has an incentive to generate less pollution.

The level of the corrective tax is intended to counterbalance the externality. In practice, nonetheless, it is extremely hard for the authorities to decide the advisable level for the taxation. Moreover, in determining the tax level, the government might come nether force per unit area from various interest groups that would benefit from a higher or lower taxation level. Still, by introducing corrective taxes in response to negative externalities the government tin can not only increment efficiency, simply raise revenues as well.

Quotas

Tradable permits are a market place-based approach assuasive the authorities to limit negative externalities produced by a grouping of firms.

Learning Objectives

Evaluate a permit arrangement equally a method to address externalities

Key Takeaways

Key Points

A permit is a right to produce a sure corporeality of a negative externality, such as pollution.
Permits are traded among firms. Firms that are able to cheaply reduce product of the externality can sell permits to firms that are unable to brand such reductions and are willing to pay for the permits.
Regardless of the initial allocation of permits, the market for permits achieves an effect that is more efficient for society.

Key Terms

Permit: The correct to produce a given amount of a negative externality (for example, the right to emit a specific volume of a pollutant).
quota: A restriction on the import of something to a specific quantity.

To address the problem of negative externalities, governments may use a quota system to try and limit them. In a quota system, the negative externality is capped at a certain amount. In the instance of pollution, the government may put a quota on the amount of pollution a manufacturing plant can produce by issuing tradable permits.

Tradable permits are one of the market-based approaches the government tin can use to accost externalities. In the past tradable permits have been primarily used to control pollution.

Emissions Trading: Emissions trading or "cap and merchandise" is a market-based approach used to control pollution past providing economic incentives for reducing the emissions of pollutants.

When pursuing this arroyo the government sets a limit or cap on the amount of a pollutant that may be emitted. It then allocates emissions permits upwards to the specified limit among firms. The permits stand for the right to emit or discharge a specific book of a specified pollutant. Firms are required to hold a number of permits equivalent to their emissions. Firms that need to increase their book of emissions must purchase permits from firms that require fewer of them. This transfer is referred to as a trade. In event, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. The upshot achieved past the marketplace for permits is more efficient, regardless of the initial allotment of permits.

The marketplace for tradable permits creates incentives for firms to produce less pollution. Firms that take a loftier cost of reducing emissions are willing to pay for the permits, while those that can reduce emissions in the most cost-efficient manner will do so and sell their permits. Tradable permits thus achieve a desired level of the externality past assuasive the market to determine which market actors can create the externality.

There are several active trading programs for air pollutants. For greenhouse gases the largest is the European union Emission Trading Scheme. In the United States there is a national market for sulfur dioxide emissions to reduce acid rain. Markets for other pollutants tend to exist smaller and more localized.