Question: Consider a spatial pollution problem with J pollution sources and M recipients. The regulator is concerned that M different permitmarkets will cause transaction costs to

Consider a spatial pollution problem with J pollution sources and M recipients. The regulator is concerned that M different permit markets will cause transaction costs to be too high. She decides to set up two trading regions, one with J₁ sources and the other with J₂sources. Find a rule to determine the second-best number of permits for each region.

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In order to determine the secondbest number of permits for each region the regulator would need to take several factors into account including but not ... View full answer

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