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Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?

  • Karen Palmer
  • Wallace E. Oates
  • Paul R. Portney

This paper takes issue with the Porter-van der Linde claim that traditional benefit-cost analysis is a fundamental misrepresentation of the environmental problem. They contend that stringent environmental measures induce innovative efforts leading to improvements in abatement and production technologies that offset the costs of the regulations. Drawing both on basic economic theory and existing data on control costs, the authors argue that such offsets are special cases. The data indicate offsets are minuscule relative to control costs. There is no free lunch here: environmental programs must justify their costs by the benefits that improved environmental quality provides to society.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.4.119
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 9 (1995)
Issue (Month): 4 (Fall)
Pages: 119-132

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Handle: RePEc:aea:jecper:v:9:y:1995:i:4:p:119-32
Note: DOI: 10.1257/jep.9.4.119
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  1. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  2. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
  3. Malueg, David A., 1989. "Emission credit trading and the incentive to adopt new pollution abatement technology," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 52-57, January.
  4. Biglaiser, Gary & Horowitz, John K, 1995. "Pollution Regulation and Incentives for Pollution-Control Research," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(4), pages 663-84, Winter.
  5. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
  6. Magat, Wesley A., 1978. "Pollution control and technological advance: A dynamic model of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 1-25, March.
  7. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
  8. Renee Rico, 1995. "The U.S. allowance trading system for sulfur dioxide: An update on market experience," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(2), pages 115-129, March.
  9. Ulph, Alistair Mitchell, 1994. "Strategic Environmental Policy and International Trade - The Role of Market Conduct," CEPR Discussion Papers 1065, C.E.P.R. Discussion Papers.
  10. Simpson, R. David & Bradford, Robert III, 1996. "Taxing Variable Cost: Environmental Regulation as Industrial Policy," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 282-300, May.
  11. Ulph, A., 1994. "Strategic environmental policy and international trade: the role of market conduct," Discussion Paper Series In Economics And Econometrics 9415, Economics Division, School of Social Sciences, University of Southampton.
  12. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
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