From Theory to Policy: Information Deficits

The results obtained in Part II demonstrate that solutions to “market failure” associated with and resulting from environmental effects or public environmental commodities, are in principle available. The main tools recommend completing the market system with instruments such as the Pigou Tax or a market for tradeable emission certificates. Alternatively, the assignment of property rights in the context of the Coase Theorem can prove helpful to redirect the market forces to an efficient allocation. In view of this theoretical framework, this chapter illustrates the role of the information which is required by the public administration to internalize the externalities. It will become clear that environmental policy is substantially affected by a lack of required information. In particular, information is missing with respect to the detailed structure of relevant markets, information is often missing regarding potentially hazardous materials or processes, and there is typically not enough information on the effectiveness of certain policies in an international context. These information deficits then have immediate consequences for environmental policy aimed at preventing pollution on a local or global level.