Property Rights and Pollution Permits

• Property rights are crucial in allocating resources efficiently and preventing the tragedy of the commons.
• Tradable pollution permits can allocate property rights to clean air and incentivize firms to reduce emissions.
• Challenges include measuring pollution levels, enforcing limits, and achieving global cooperation for effective implementation.

This module discusses the importance of property rights in managing economic resources and addresses the issue of market failure caused by the absence of property rights. Without clearly assigned property rights, resources can be overconsumed, leading to the tragedy of the commons. Tradable pollution permits are presented as a solution to this problem, as they allocate property rights to clean air and incentivize firms to reduce their emissions. By reducing the supply of permits over time, the overall level of pollution can be decreased. However, there are challenges in measuring pollution levels, enforcing limits, and achieving global cooperation. Schemes like the EU cap and trade scheme or global agreements are necessary to effectively tackle pollution.