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The text discusses cap-and-trade in the context of managing pollution externalities in a market. It suggests that rather than assigning fixed pollution quantities to businesses, it is better to give them permits, where each permit allows for the pollution of one ton. This approach allows companies to figure out their own optimal pollution levels. If there are multiple companies involved, it is best to let them determine how to allocate permits to achieve the socially optimal pollution quantity of 40 units.
