Explain the allocation of pollution

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Suppose the state of Minnesota decided to impose stricter regulations on water pollution in lakes and rivers. It will do so by authorizing an auction of water pollution permits that allow some plants/firms to discharge larger amounts of chemicals than would otherwise be allowed, and some to discharge less. Theory predicts that this auction would lead to a socially efficient (cost- effective) allocation of pollution. Describe how this outcome would occur.

Reference no: EM133252121

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