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Presidential Address Imperfections in the Economics of Public Policy, Imperfections in Markets, and Climate Change

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  • Nicholas Stern

Abstract

The economics of public policy has suffered from "collective amnesia": we have forgotten or ignored much of the tradition of public policy in imperfect economies whose foundations were laid by James Meade and Paul Samuelson. This has been associated with a period of around two decades from the early 1980s to the early 2000s where the economics of public policy has "bent to political winds" and has fed arguments for government to get out of the way and leave everything to the markets, to self-interest and to self-regulation. This has manifested itself via the choice of models (those which imply, often directly from assumptions, passive government), patterns of teaching (the marginalisation of public economies in imperfect economics) and "compartmentalisation." Examples in climate change where this amnesia has misled include approaches to discounting and the failure to make non-marginal change central to analysis. On the other hand, creative application of modern public economics gives interesting results such as the possibility of making both current and future generations better off and of informed discussion complementing economic instruments. There are strong formal analogies between policy on climate change and on behavioural economics. Indeed, there seems to be great potential in the combination of these two fields. (JEL: A10, A12, D61, D62, D63) (c) 2010 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 2-3 (04-05)
Pages: 253-288

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:253-288

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  1. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, vol. 42(1), pages 1-45, June.
  2. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  3. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  4. Conesa, Juan Carlos & Kitao, Sagiri & Krüger, Dirk, 2006. "Taxing Capital? Not a Bad Idea After All!," CEPR Discussion Papers 5929, C.E.P.R. Discussion Papers.
  5. Guesnerie, Roger & Roberts, Kevin, 1987. "Minimum wage legislation as a second best policy," European Economic Review, Elsevier, vol. 31(1-2), pages 490-498.
  6. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  7. Guesnerie Roger, 1976. "On the direction of tax reform," CEPREMAP Working Papers (Couverture Orange) 7603, CEPREMAP.
  8. Ackerman, Frank & Stanton, Elizabeth A. & Bueno, Ramón, 2010. "Fat tails, exponents, extreme uncertainty: Simulating catastrophe in DICE," Ecological Economics, Elsevier, vol. 69(8), pages 1657-1665, June.
  9. Nicholas Stern & Jean-Jacques Dethier & F. Halsey Rogers, 2006. "Growth and Empowerment: Making Development Happen," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262693461, December.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  11. Stern, Nicholas H, 1972. "Optimum Development in a Dual Economy," Review of Economic Studies, Wiley Blackwell, vol. 39(2), pages 171-84, April.
  12. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
  13. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101.
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Cited by:
  1. Foley, Duncan K. & Rezai, Armon & Taylor, Lance, 2013. "The social cost of carbon emissions: Seven propositions," Economics Letters, Elsevier, vol. 121(1), pages 90-97.
  2. Gerlagh, Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2014. "The optimal time path of clean energy R&D policy when patents have finite lifetime," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 2-19.
  3. Armon Rezai, 2011. "The Opportunity Cost of Climate Policy: A Question of Reference," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 885-903, December.
  4. Markus Pasche, 2013. "What Can be Learned from Behavioural Economics for Environmental Policy?," Jena Economic Research Papers 2013-020, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  5. repec:lsg:lsgwps:wp84 is not listed on IDEAS
  6. Zhao, Xiaoli & Yin, Haitao, 2011. "Industrial relocation and energy consumption: Evidence from China," Energy Policy, Elsevier, vol. 39(5), pages 2944-2956, May.
  7. Nicholas Stern, 2013. "EEthics, Equity and the Economics of Climate Change. Paper 1: Science and Philosophy," Grantham Research Institute on Climate Change and the Environment Working Papers 84a, Grantham Research Institute on Climate Change and the Environment.

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