Incentive Based vs Standard Policies on Pollution Abatement

There are two classes of incentive based policies: taxes and tradable emission permits (discussed at a later date). The advantages of a tax is that they are always cost effective, provide incentive for polluting firms to invest in abatement technology, internalizes the externality of pollution and payments generate public revenue that can be used to mitigate the negitive effects of pollution. Problems with taxrs are that they might be implimented for reasons other than protection of the enviroment, payments are reductions in revenue of the firm (which could cause some firms to leave the industry), the payments might exceed enviromental damage, difficult to impliment, monitor and enforce, pollitically unpopular, uniform taxes not appropriate and inflation affects control.

Standards for polution (ie, only allowed to pollute a certain amount) are, on the other hand, politically popular, generally not efficient or cost effective, impose high informal costs and surpress technological innovation.

A tax (incentive based instrument) gives the company flexibility to figure out for themselves how much to abate. They would always have a financial incentive to abate more at any level of pollution because this would lower the amount of tax that they would pay. The company would always strive for better technology to be able to save more on their taxes. With a standard for abatement the company would improve abatement technology up to the standard and then stop – they would have no further incentive at that point. They would actually have disincentive to create better technology because then, if that technology becomes the market norm, the standard might be lowered and they would lose some flexibility. With a tax, in contrast, the government would not have incentive to increase the emissions charge as abatement goes up, the revenue from taxes would go down, but so would environmental damage – which is the goal of the tax in the first place (to offset the externality).

To find the efficient level of abatement it is necessary to know the marginal abatement costs (the cost of abating one more unit at any given level of abatement) and the marginal social benefit of abatement (the inverse of the damage of pollution function). With the MAC (marginal abatement cost function) of each company you can calculate the MAC of the market. The efficient level of abatement is where the two functions are equal (MAC[market]=MBA[society]). The most efficient level of abatement for each firm would be found by dividing the total efficient abatement level between the firms such that each firm spends the same amount to abate the last unit of abatement.
I am assuming that you can calculate the marginal abatement costs and the marginal benefit of abatement. I am also assuming that the enforcement costs are negligible or zero. The pollution must also be a point source pollutant. At the efficient level of abatement the benefits and the cost of the abatement are equal. If you abated more it would not be worth it and the cost would be too high in comparison to the benefits; This could push firms out of the market even. However, if you are below the efficient amount of abatement then you would not be abating enough; the cost to society of that pollution is higher than the benefit coming from causing the pollution, this is also not ideal.

In a condition of uncertainty you might not be able to find the efficient level of abatement, but you want to weigh your risks to find out what is the safest choice – to have too high of a standard or tax rate (which could harm business and cause firms to even leave the market) or an abatement level that is too low (too high levels of environmental damage). If you want to make sure that you abate a certain amount, for a certain level of environmental protection, a "command and control" instrument would be best. However, if you want to be sure not to harm business too much, then a market or incentive based instrument would be best.

The US prison system

Our prison system is the most compassionless and un-spiritual place in the US. I feel that the way we deal with our "problem people" is barbaric. Most people in prison, once they are released, return. There is no rehabilitation, only breeding of more hardened criminals.
"The model that permeates our lives is retribution. Someone is to blame, and someone must pay. Our prison system is the most blatant example of a complete and utter lack of compassion. Within the last several years, even the term 'correctional institution', which hinted at some attention to rehabilitation, has been officially dropped. Now our prison system doesn't even pretend the least interest in helping or supporting inmates. They did something wrong; they pay the price. It's only fair. Each individual is to blame....(as if he or she didn't emerge out of a dysfunctional subculture or family, created by overwhelming social and economic inequalities), and when you screw up, these are the consequences: an even worse, appallingly dysfunctional society (prison), fully supported by tax dollars. 'in god we trust?; not in our prison system. In our ability to be as cruel and vindictive as possible we trust." (from "Why Talking Is Not Enough" By: Susan Page)
In prison people are abused, raped and denied basic human rights - yet the public couldn't care less. We figure that they did their crime, they are wrong, and must pay the price. Why did they commit their crime in the first place? I strongly feel that more crime would be prevented, not by cracking down on crime, but by helping out impoverished, abused and mistreated people in our country.
Polititians want to be tougher on crime, it is unpolitically-correct to protect the rights of criminals - who, by the way, have lost thier right to vote. Prison gards are unionized and want to protect thier jobs. The system is self perpetuating and sickening... and people will just sit by and watch.