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Market-based Approaches to Environmental Regulation

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  • Gayer, Ted
  • Horowitz, John K.

Abstract

Economists argue that policymakers should take advantage of market principles in designing environmental regulations. Such market-based approaches – environmental taxes and cap-and-trade – use economic incentives to achieve environmental goals at lower costs. Market-based approaches have now become common due to near-unanimous advocacy by economists and early positive policy experiences. Despite this acceptance, policymakers have often merged market-based incentives onto existing non-market approaches resulting in a set of mixed policies whose economic properties are often difficult to unravel. Thus, even the most prominent market-based regulations contain many non-market elements. The authors review the economics literature on the rationale for and optimal design of environmental taxes and cap-and-trade systems. They then discuss the structure and economics of the major U.S. market-based policies.

Suggested Citation

  • Gayer, Ted & Horowitz, John K., 2006. "Market-based Approaches to Environmental Regulation," Foundations and Trends(R) in Microeconomics, now publishers, vol. 1(4), pages 201-326, August.
  • Handle: RePEc:now:fntmic:0700000013
    DOI: 10.1561/0700000013
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    Cited by:

    1. Mehmet Nar, 2021. "The Role of Carbon Taxes in Reducing Greenhouse Gas Emissions," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 117-125.
    2. Greenstone, Michael & Gayer, Ted, 2009. "Quasi-experimental and experimental approaches to environmental economics," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 21-44, January.
    3. Patrick Bigger, 2018. "Hybridity, possibility: Degrees of marketization in tradeable permit systems," Environment and Planning A, , vol. 50(3), pages 512-530, May.
    4. Djukic, Malisa & Jovanoski, Iljcho & Ivanovic, Olja Munitlak & Lazic, Milena & Bodroza, Dusko, 2016. "Cost-benefit analysis of an infrastructure project and a cost-reflective tariff: A case study for investment in wastewater treatment plant in Serbia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1419-1425.

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