Pollution Permits Game

Walbert, Mark S. and Thomas J. Bierma. "The Permits Game: Conveying the Logic of Marketable Pollution Permits." Journal of Economic Education. 19 (Fall 1988) 383-389.

This game teaches the concept of pollution permits and their basis in the control of pollution output in various industries. This experiment divides the class into three different companies that create industrial pollution. The students are given general instructions that outline the problem of the pollution and the ways in which the pollution can be reduced. They are also given a graph. The students manage the firms in compliance with the regulations that are being imposed to reduce pollution in that particular city. Within each group, an economist, accountant, and an environmental specialist must be elected to make the actual bids during the auction of the permits. Each group must apply four different strategies to try to attain the lowest cost of meeting the imposed standards. The first strategy deals with a system of limits that would create less pollution from each company. To determine the amount they must reduce, each group would subtract the limit from the amount of pollution that they produce. Then they must try to make an estimate of the cost of this reduction by multiplying the cost of control by the units reduced. This can be done with the help of the graph. The second strategy takes a regional approach by requiring all industries to lessen emissions by the same percentage. The third strategy involves issuing permits to companies until the maximum amount of emissions that are allowed is attained. Each group is able to buy and sell their permits to the other groups. There are two variations to this strategy. The first deals with all of the permits being auctioned off by the Pollution Control Board. If this is done, each company must first establish the highest amount they are willing to pay for each permit. In the second variation, the Board chooses to give the permits away so that each group can cover half of their permitted emissions. Then auctioning begins, but beforehand each group must know how much they would pay to buy a permit and the lowest they would sell a permit for. The point of this game is to show that either approach reaches the correct level of permissible pollution.