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Toward enhancement of the contribution of theory to environmental policy

  • William Baumol
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    Theory can be helpful to policy makers by pointing out surprising relationships unlikely to be recognized by unaided common sense; by noting significant exeptions to principles widely accepted; and by offering generalizations of its own. The paper argues that theorists may not have done enough of the first two and may have overstressed the last, giving insufficient warnings of pitfalls. Examples of each of the three are provided. The first is illustrated by a theorem which shows that any new energy source, such as gasohol, which is supplied only because of a subsidy, prospectively uses up more energy than it creates. The important exception application is illustrated by showing that subsidies which reward reduced emissions by the firm tend to increase pollution by the industry. Finally, the paper discusses inadvertent bias in the empirical evidence reasserting the superior performance of fiscal incentives for reduced environmental damage as compared to direct controls, thus casting doubt on the allegedly universal superiority of incentives. Copyright Kluwer Academic Publishers 1991

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    Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

    Volume (Year): 1 (1991)
    Issue (Month): 4 (December)
    Pages: 333-352

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    Handle: RePEc:kap:enreec:v:1:y:1991:i:4:p:333-352
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    1. Baumol, William J & Wolff, Edward N, 1981. "Subsidies to New Energy," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 891-913, October.
    2. Plott, Charles R., . "Externalities and Corrective Policies in Experimental Markets," Working Papers 180, California Institute of Technology, Division of the Humanities and Social Sciences.
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    4. repec:cup:cbooks:9780521322249 is not listed on IDEAS
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