If the government issues ITQs that limit the total amount of water taken to the efficient quantity,
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A natural spring runs under land owned by ten people. Each person has the right to sink a well and can take water from the spring at a constant marginal cost of $5 a gallon. The table sets out the external cost and the social benefit of water.
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Quantity Marginal Marginal of water ernal cost social benefit (gallons per day) 10 20 30 40 (dollars per gallon) (dollars per gallon) 10 0 60
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The market price of an ITQ equals the marginal social benefit minus the marginal private ...View the full answer
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