Decisions concerning environmental protection hinge on estimates of economic burden. Over the past 30 years, economists have developed and applied various tools to measure this burden. In this chapter, we present a taxonomy of costs along with methods for measuring those costs. At the broadest level, we distinguish between partial and general equilibrium costs. Partial equilibrium costs represent the burden directly borne by the regulated entity (firms, households, government), including both pecuniary and nonpecuniary expenses, when prices are held constant. General equilibrium costs reflect the net burden once all good and factor markets have equilibrated. In addition to partial equilibrium costs, these general equilibrium costs include welfare losses or gains in markets with preexisting distortions, welfare losses or gains from rebalancing the government's budget constraint, and welfare gains from the added flexibility of meeting pollution constraints through reductions in the use of higher-priced, pollution-intensive products. In addition to both partial and general equilibrium costs, we also consider the distribution of costs across households, countries, sectors, subnational regions, and generations. Despite improvements in our understanding of cost measurement, we find considerable opportunity for further work and, especially, better application of existing methods.
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ReDIF This chapter was published in: K. G. Mäler & J. R. Vincent (ed.) Handbook of Environmental Economics, , chapter 25, pages 1307-1351, 2005.
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Related research
This chapter was published in the following book, which is listed on IDEAS: K. G. Mäler & J. R. Vincent (ed.), 2005.
"Handbook of Environmental Economics,"
Handbook of Environmental Economics,
Elsevier,
edition 1, volume 3, number 3, September.
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Find related papers by JEL classification: Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
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