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Imagine that the marginal damage resulting from pollutions is given with MD = 120 - R, where R is the amount of reduction of pollution.
Imagine that the marginal damage resulting from pollutions is given with MD = 120 - R, where R is the amount of reduction of pollution. At the same time it is believed the marginal cost of reduction of pollution is given with MC = R. However, there is some uncertainty with regard to the cost of reducuction of pollution. It may be the case that the actual cost is given with MCA = 3 R. Assuming that efficiency is the primary objective which approach would you advocate? regulation - a mandate that R be set to 80. continue to tax at 80 would be indifferent between regulation and taxation of any kind continue to tax, but taxes should now be lower
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