Consider a situation similar to the previous exercise. According to Roberts and Spence, the regulator can set n different levels of tradable permits L₁2.....N subsidy rates ζ₁2 <.....>n  and tax rates τ₁ 2 .... n with ζ₂ = τ₁, ζ₃ = τ₂ ,..., ζ_n = τ_n–1    Assume further that is chosen such that it corresponds to the optimal emission price when  and corresponds to the optimal emission price when  Further let  be the optimal emission level for  and  be the optimal emission level for   Finally , assume that the regulator chooses  as well a in equal distances. Calculate the maximum possible welfare loss.

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