Two pollution sources are located in the same town, immediately next to each other. For every quantity of abatement, marginal costs of abatement for the first source are higher than marginal costs of abatement for the second source.
(a) If both the tax and standard achieve the same level of total emissions, is a uniform pollution tax more efficient than a uniform pollution standard (that is, a tax or a standard that is the same for both sources), less efficient than a uniform standard, or are you unable to tell? Why?
(b) Would the sources prefer to face a pollution subsidy or a marketable permit scheme, if permits are distributed at no cost based on the standard in (a), and both the subsidy and the permit scheme achieve the same level of total emissions? Why?