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Transaction Costs and Environmental Markets: The Role of Entrepreneurs


  • Terry L. Anderson
  • Dominic P. Parker


At the core of environmental economics is the potential for a divergence between private and social costs (based on the work of A. C. Pigou) and the potential for private contracts to shrink this divergence (based on the work of Ronald Coase). A close examination of Pigou and Coase reveals that the two are not so far apart, with Pigou emphasizing "technical difficulties" and Coase emphasizing transaction costs as the reason that private actors do not account for all costs and benefits. Building from this emphasis on transaction costs, we identify environmental entrepreneurship as an important but underappreciated force for improving resource allocation. Entrepreneurs guide the evolution of property rights, which in turn can lower the transaction costs of using markets to solve environmental problems. We define three types of entrepreneurs--those who contract over existing property rights in innovative ways, those who create new environmental property rights, and those who elicit private payments for public goods--and provide examples of how these entrepreneurs have improved resource allocation. These examples offer lessons about how government can encourage or discourage entrepreneurship. (JEL: Q2, Q5, D23, L26) Copyright 2013, Oxford University Press.

Suggested Citation

  • Terry L. Anderson & Dominic P. Parker, 2013. "Transaction Costs and Environmental Markets: The Role of Entrepreneurs," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(2), pages 259-275, July.
  • Handle: RePEc:oup:renvpo:v:7:y:2013:i:2:p:259-275

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    Cited by:

    1. Matthew Potoski, 2017. "Green clubs in building block climate change regimes," Climatic Change, Springer, vol. 144(1), pages 53-63, September.
    2. Hughes, Jonathan E. & Kaffine, Daniel, 2017. "When is increasing consumption of common property optimal? Sorting, congestion and entry in the commons," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 227-242.
    3. Andrew David Allan Smith, 2016. "The Use and Abuse of Environmental Knowledge: A Bloomington School Interpretation of the Canadian Fisheries Act of 1868," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(2), pages 139-161, June.
    4. Jonathan E. Hughes & Daniel Kaffine, 2013. "When is Encouraging Consumption of Common Property Second Best? Sorting, Congestion and Entry in the Commons," Working Papers 2013-05, Colorado School of Mines, Division of Economics and Business.
    5. Guo-Hua Cao & Jing Zhang, 2021. "Is a sustainable loop of economy and entrepreneurial ecosystem possible? a structural perspective," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(5), pages 7002-7040, May.
    6. Moxey, Andrew & Smyth, Mary-Ann & Taylor, Emily & Williams, A. Prysor, 2021. "Barriers and opportunities facing the UK Peatland Code: A case-study of blended green finance," Land Use Policy, Elsevier, vol. 108(C).
    7. Ian A. MacKenzie & Markus Ohndorf, 2014. "Coasean Bargaining in the Presence of Pigouvian Taxation: Revisiting the Buchanan-Stubblebine-Turvey Theorem," Discussion Papers Series 515, School of Economics, University of Queensland, Australia.
    8. Dolejší, David, 2018. "Coproduction of property rights: The management of watercourses in pre-modern Bohemia," International Review of Law and Economics, Elsevier, vol. 53(C), pages 50-59.
    9. MacKenzie, Ian A. & Ohndorf, Markus, 2016. "Coasean bargaining in the presence of Pigouvian taxation," Journal of Environmental Economics and Management, Elsevier, vol. 75(C), pages 1-11.

    More about this item

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship


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