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Getting the Prices Wrong: The Limits of Market-Based Environmental Policy

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Author Info

  • Frank Ackerman

    (The Global Development And Environment Institute at Tufts Universty)

  • Kevin Gallagher

    (The Global Development And Environment Institute at Tufts Universty)

Abstract

Market based policies are fast becoming the recommended policy panacea for all the world’s environmental problems. Implicit in such recommendations is the theory that free markets, adjusted for externalities, can always create an “efficient” allocation of society’s resources. As a result, many contemporary policymakers advocate rolling back regulations in order to let the market protect the environment. There is a fundamental distinction between the use of the market as a tool to help achieve society’s goals, and as a blueprint for society’s goals; the market is a reasonable policy tool but not a reasonable blueprint. The market as blueprint fails because there are significant public purposes that cannot be achieved by prices and markets alone. Five major arguments show that getting the prices right is often a narrow or meaningless objective; society may intentionally and appropriately choose to “get the prices wrong” in order to pursue more important goals.

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File URL: http://128.118.178.162/eps/dev/papers/0106/0106005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0106005.

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Length: 18 pages
Date of creation: 13 Jun 2001
Date of revision:
Handle: RePEc:wpa:wuwpdc:0106005

Note: Type of Document - PDF; pages: 18; figures: n/a. Other working papers available at www.gdae.org
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Web page: http://128.118.178.162

Related research

Keywords: Economic theory; Environmental Policy; Sustainability;

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References

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  1. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, American Economic Association, vol. 67(5), pages 972-74, December.
  2. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 88(1), pages 141-49.
  3. Richard Howarth & Richard Norgaard, 1993. "Intergenerational transfers and the social discount rate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 3(4), pages 337-358, August.
  4. Ackerman, Frank & Moomaw, William, 1997. "SO2 emissions trading: does it work?," The Electricity Journal, Elsevier, Elsevier, vol. 10(7), pages 61-66.
  5. Bromley, Daniel W., 1998. "Searching for sustainability: The poverty of spontaneous order," Ecological Economics, Elsevier, Elsevier, vol. 24(2-3), pages 231-240, February.
  6. Gustafsson, Bo, 1998. "Scope and limits of the market mechanism in environmental management," Ecological Economics, Elsevier, Elsevier, vol. 24(2-3), pages 259-274, February.
  7. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier, Elsevier.
  8. Frank Ackerman, 2001. "Still dead after all these years: interpreting the failure of general equilibrium theory," Journal of Economic Methodology, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(2), pages 119-139.
  9. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(4), pages 45-64, Fall.
  10. Vatn Arild & Bromley Daniel W., 1994. "Choices without Prices without Apologies," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 129-148, March.
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Cited by:
  1. Paragahawewa, Upananda Herath, 2006. "Market-Based Approaches to Pollution Control in the Lake Taupo Catchment in New Zealand," 2006 Conference, August 24-25, 2006, Nelson, New Zealand, New Zealand Agricultural and Resource Economics Society 31975, New Zealand Agricultural and Resource Economics Society.
  2. Paragahawewa, Upananda Herath, 2006. "Market-Based Approaches to Pollution Control in the Lake Taupo Catchment in New Zealand," 2006 Conference, August 24-25, 2006, Nelson, New Zealand, New Zealand Agricultural and Resource Economics Society 31975, New Zealand Agricultural and Resource Economics Society.
  3. Frank Ackerman & Kevin Gallagher, 2001. "Mixed Signals: Market Incentives, Recycling, and the Price Spike of 1995," Game Theory and Information, EconWPA 0106001, EconWPA.

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