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The theory of pollution policy

In: Handbook of Environmental Economics

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  • Helfand, Gloria E.
  • Berck, Peter
  • Maull, Tim
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    Abstract

    Physically, pollution occurs because it is virtually impossible to have a productive process that involves no waste; economically, pollution occurs because polluting is less expensive than operating cleanly. This chapter explores the sources and consequences of, and remedies for, pollution and associated environmental damages. If all goods had well-defined property rights and could be traded in markets, environmental goods would be no different than other goods; however, markets fail for these goods because property rights cannot or do not exist and because of the nonexclusive, nonrival nature of these goods. Thus, environmental goods provide the classic case where government intervention can increase efficiency. Achieving efficient levels of pollution involves charging per unit of pollution based on damages caused by that unit. In practice, this policy can be difficult to achieve, due to difficulties in measuring and differentiating damages by source, difficulties in monitoring and enforcing pollution policies, and the financial and political costs of pollution taxes. Additionally, pre-existing market distortions influence the nature of efficient pollution abatement strategies. Thus, many regulatory approaches that do not achieve first-best outcomes may be used because their technological or political feasibility is superior. Market-based instruments provide flexibility to polluters, while command-and-control (standards-based) approaches limit choice, often through an emissions limit or a technology requirement. Market-based approaches typically achieve a specified level of emissions with lower abatement costs than standards, but their greater efficiency may not hold in the presence of the problems mentioned above. Non-regulatory approaches to pollution control include the use of liability law to define and enforce property rights and some voluntary pollution control initiatives by polluters. While these approaches can play an important role, they are unlikely to achieve adequate provision of environmental goods.

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    This chapter was published in:

  • K. G. Mäler & J. R. Vincent (ed.), 2003. "Handbook of Environmental Economics," Handbook of Environmental Economics, Elsevier, edition 1, volume 1, number 1, June.
    This item is provided by Elsevier in its series Handbook of Environmental Economics with number 1-06.

    Handle: RePEc:eee:envchp:1-06

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    Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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    Cited by:
    1. B�rd Harstad, 2012. "Buy Coal! A Case for Supply-Side Environmental Policy," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 77 - 115.
    2. Lori Bennear & Robert Stavins, 2007. "Second-best theory and the use of multiple policy instruments," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 111-129, May.
    3. Steven Shavell, 2010. "The Corrective Tax versus Liability As Solutions to the Problem of Harmful Externalities," NBER Working Papers 16235, National Bureau of Economic Research, Inc.
    4. Weisbach, David, 2009. "Instrument Choice is Instrument Design," Working paper 4, Regulation2point0.
    5. Annegrete Bruvoll & Hanne Marit Dalen & Bodil M.Larsen, 2012. "Political motives in climate and energy policy," Discussion Papers 721, Research Department of Statistics Norway.
    6. Broberg, Thomas & Forsfält, Tomas & Östblom, Göran, 2011. "The Excess Cost of Supplementary Constraints in Climate Policy: The Case of Sweden’s Energy Intensity Target," Working Paper 123, National Institute of Economic Research.
    7. Pietro Peretto, 2008. "Effluent taxes, market structure, and the rate and direction of endogenous technological change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(2), pages 113-138, February.
    8. Don Fullerton & Andrew Leicester & Stephen Smith, 2008. "Environmental Taxes," NBER Working Papers 14197, National Bureau of Economic Research, Inc.
    9. Petsakos, Athanasios & Jayet, Pierre-Alain, 2010. "Evaluating the efficiency of a N-input tax under different policy scenarios at different scales," 120th Seminar, September 2-4, 2010, Chania, Crete 109397, European Association of Agricultural Economists.
    10. Donatella Baiardi & Mario Menegatti, 2011. "Pigouvian tax, abatement policies and uncertainty on the environment," Journal of Economics, Springer, vol. 103(3), pages 221-251, July.
    11. Fenichel, Eli P. & Abbott, Joshua K., 2014. "Heterogeneity and the fragility of the first best: Putting the “micro” in bioeconomic models of recreational resources," Resource and Energy Economics, Elsevier, vol. 36(2), pages 351-369.
    12. Uchida, Emi, 2005. "Optimal Timber Rotation on Multiple Stands with an Asymmetric Externality," 2005 Annual meeting, July 24-27, Providence, RI 19532, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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