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Transaction Costs, Economic Instruments And Environmental Policies

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  • Herath, Deepananda P.B.
  • Weersink, Alfons

Abstract

This study has attempted to distinguish the alternative forms of transaction costs referred to the environmental policy literature and to bring these transaction costs into a unified theory. The optimal choice of economic instrument between Pigouvian taxes and tradable permits is shown to depend on the level of transaction costs as opposed to the standard model where both emission taxes and permits are first best policies to achieve a level of emissions. It is demonstrated that inclusion of transaction costs decreases the socially optimal emission level as compared to the standard model. Instrument selection is affected by the functional specification for instrument costs for both firm and regulator level. Depending on the nature of these costs optimal economic instruments will be different.

Suggested Citation

  • Herath, Deepananda P.B. & Weersink, Alfons, 1999. "Transaction Costs, Economic Instruments And Environmental Policies," 1999 Annual meeting, August 8-11, Nashville, TN 21588, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea99:21588
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    File URL: http://ageconsearch.umn.edu/record/21588/files/sp99he03.pdf
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    References listed on IDEAS

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    1. Hahn, Robert W., 1990. "Regulatory constraints on environmental markets," Journal of Public Economics, Elsevier, vol. 42(2), pages 149-175, July.
    2. Dewees, Donald N, 1983. "Instrument Choice in Environmental Policy," Economic Inquiry, Western Economic Association International, vol. 21(1), pages 53-71, January.
    3. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    4. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
    5. Masten, Scott E & Meehan, James W, Jr & Snyder, Edward A, 1991. "The Costs of Organization," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(1), pages 1-25, Spring.
    6. Hahn, Robert W & Stavins, Robert N, 1992. "Economic Incentives for Environmental Protection: Integrating Theory and Practice," American Economic Review, American Economic Association, vol. 82(2), pages 464-468, May.
    7. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, vol. 82(4), pages 713-719, September.
    8. Montero, Juan-Pablo, 1998. "Marketable pollution permits with uncertainty and transaction costs," Resource and Energy Economics, Elsevier, vol. 20(1), pages 27-50, March.
    9. Smith, Rodney B.W. & Tomasi, Theodore D., 1995. "Transaction Costs And Agricultural Nonpoint-Source Water Pollution Control Policies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Number 2), pages 1-14, December.
    10. Mitchell Polinsky, A. & Shavell, Steven, 1982. "Pigouvian taxation with administrative costs," Journal of Public Economics, Elsevier, vol. 19(3), pages 385-394, December.
    11. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    12. Hahn, Robert W, 1989. "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 95-114, Spring.
    13. Seskin, Eugene P. & Anderson, Robert Jr. & Reid, Robert O., 1983. "An empirical analysis of economic strategies for controlling air pollution," Journal of Environmental Economics and Management, Elsevier, vol. 10(2), pages 112-124, June.
    14. Lata Gangadharan, 2000. "Transaction Costs in Pollution Markets: An Empirical Study," Land Economics, University of Wisconsin Press, vol. 76(4), pages 601-614.
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    Cited by:

    1. Gordon, Simon, 2003. "Economic Instruments For Nonpoint Source Water Pollution: Options For The Swan-Canning River System," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57873, Australian Agricultural and Resource Economics Society.
    2. Jahan Dideh, Mahsa, 2016. "Essays on public economics," Other publications TiSEM 955f607d-b1ac-4680-b8ff-6, Tilburg University, School of Economics and Management.

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