The Clean Air Act instituted trades between
states for SO2 emissions. Several
utility companies...

Question

The Clean Air Act instituted trades between
states for SO2 emissions. Several
utility companies across geographic borders have engaged in such trades in
recent years. Consider a trade between a
utility in Wisconsin and the TVA in Tennessee.
Assume that the trade reduces Wisconsin electricity consumers’ bills by
a total of $ 1 million, and lowers Tennessee electricity consumers’ bills by $
500,000. Also assume that the trade
improves local environmental quality in Wisconsin by an amount that people value
at $ 2 million. If the local
environmental quality in Tennessee declines as a result of this trade, then
indicate a potential Coase agreement that could avoid the environmental decline
and would still make the trade profitable to both parties ? Is such a trade possible in this scenario ?

David · Accepted Answer

The Clean Air Act instituted trades between states for SO2 emissions. Several utility 
companies across geographic borders have engaged in such trades in recent years. 
Consider a trade between a utility in Wisconsin and the TVA in Tennessee. Assume that the 
trade reduces Wisconsin electricity consumers’ bills by a total of $ 1 million, and lowers 
Tennessee electricity consumers’ bills by $ 500,000. Also assume that the trade improves 
local environmental quality in Wisconsin by an amount that people value at $ 2 million.

The Clean Air Act instituted trades between states for SO2 emissions. Several utility companies across geographic borders have engaged in such trades in recent years. Consider a trade between...

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