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pendently the rate of extraction of his resource. He still owns the resourceand receives payment for whatever amount he extracts. But the scale ofextraction is no longer a free good. It is socially limited to a nationalquota, and resource owners must bid at auction for the right to extract ashare of the limited total extraction permitted. The scale limit may ultimatelybe set according to sink limits if they are more binding but still enforcedat the source end.Alternatively, we could have a market in sink permits, capped at an aggregatescale. Suppose, in the case of fossil fuels, all users had to purchaseemission permits to burn whatever fossil fuel they purchased. This wouldindirectly limit demand at the source, and source owners would feel thepinch of scarce sink capacity—the scarcity of one complementary factorreduces the value of the other. This may appear less an infringement onthe property rights of the source owners, since they have no claim to thesink, and it is the sink that is being directly limited. But the sink limit onthe throughput is surely translated back to the input end. And since thatsink limit will be experienced by source owners indirectly, even if we putthe limit directly on the sink, why not go ahead and put the limit on thesource in the first place? That would be the more efficient place to put it,even if it is the sink that is most scarce.The other possibility noted is to fix prices through taxes and allow themarket to set the corresponding quantity. Once again, this is more efficientlydone at the depletion end rather than the pollution end, but bothare possible. The tax may be levied at the input end even though its basicmotive is to limit the output. The advantage of taxes is administrative simplicity—wealready have a tax system, and altering it is less disruptivethan setting up a quota system with auctions. This is a significant advantage.On the other hand, taxes really do not limit quantities very strictly,and they maintain the false perception that there are no quantitative limitsas long as one pays the price. As long as we pay the price plus a correctivetax, the message conveyed is that we can get as much as we want,individually and collectively. The quota, by contrast, makes it clear thatthe total quantity will not increase and that all the price is doing is to rationthe fixed quantity among competing users. The latter seems a morehonest and truthful perception, since we are dealing with a scale-limitedphysical throughput, not income or welfare.THINK ABOUT IT!Does the current U.S. policy on carbon emissions follow the guidelinesproposed in this chapter? Should it? Does the policy follow the sequenceof scale, distribution, then allocation? To whom does it distributeemission rights?Chapter 21 General Policy Design Principles • 423