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A TRADABLE PERMITS system represents an attempted solution to problems arising from the use of common property resources, such as air and water, either as a source of value or a sink for pollutants or waste. Since such resources are freely available to everyone and costs of their overuse, depletion, or damage are not borne directly by the user, there is a tendency toward unsustainable usage (a Tragedy of the Commons).

A tradable permit system limits the amount of the resource that can be used or the quantity of pollution that can be emitted, but then allows this quantity to be freely exchanged. Tradable permits are licenses issued by a competent authority that give the holders the right to use the resource specified (e.g., producing pollution ...

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