Question

Briefly discuss the differences between uniform and individual standards, and explain which one results in cost-effective pollution control. (economic perspective)

Answer 1

Fiest lets define what uniform and individual standards are.

Uniform standards are where all polluting firms are asked to reduce their pollution by same amount or are asked to cap their maximum pollution at a same fixed amount. For example, 2 firms might be asked to both reduce their pollution by 100 units or cap their maximum pollution at 100 units, no matter what their previous pollution level was.

Individual standards, on the other hand, are set on a irm by firm basis, depending on the firm's abatement costs and current pollution levels.

Individual standards are always more cost effective than uniform standards. This is because each firm has different abatement costs. Lets say the maximum amount of emissions is capped at 50 each firm. A firm which is producing 250 units of emission right now will have different abatement cost than a firm producing 150 units. The costs also depend on the technology the firm is using, the raw materials, the location and so on. So when they are asked to have a uniform reduction or capping, obviously they incur different costs. On the other hand, if individual standards are used, then their individual costs of abatement come into picture and a far more cost effective strategy can be designed.