IDEAS home Printed from https://ideas.repec.org/p/ags/rffdps/10776.html
   My bibliography  Save this paper

Do Lower Prices For Polluting Goods Make Environmental Externalities Worse?

Author

Listed:
  • Brennan, Timothy J.

Abstract

Lower prices for polluting goods will increase their sales and the pollution that results from their production or use. Conventional intuition suggests that this relationship implies a greater need for environmental policy when prices of "dirty" goods fall. But the economic inefficiency resulting overproduction of polluting goods may fall, not rise, as the cost of producing those goods falls. While lower costs exacerbate overproduction, they also reduce the difference between private benefit and the total social cost--the sum of private and external costs--associated with that overproduction. We derive a test, based on readily observed or estimated parameters for conditions in which the latter effect outweighs the former. In such cases, making a dirty good cheaper to produce may reduce the need for pollution policy. This test, with minor modifications, can be applied where the dirty good is not competitive, demand rather than supply drives the increase in output, and abatement in production can reduce pollution. The analysis may speak to whether stricter air pollution regulations should accompany policies to reduce electricity costs by making power generation more competitive.

Suggested Citation

  • Brennan, Timothy J., 1999. "Do Lower Prices For Polluting Goods Make Environmental Externalities Worse?," Discussion Papers 10776, Resources for the Future.
  • Handle: RePEc:ags:rffdps:10776
    DOI: 10.22004/ag.econ.10776
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/10776/files/dp990040.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.10776?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    2. Lawrence H. Goulder & Ian W.H. Parry & Dallas Burtraw, 2002. "Revenue-Raising versus Other Approaches to Environmental Protection: The Critical Significance of Preexisting Tax Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 24, pages 447-470, Edward Elgar Publishing.
    3. Downing, Paul B. & Watson, William Jr., 1974. "The economics of enforcing air pollution controls," Journal of Environmental Economics and Management, Elsevier, vol. 1(3), pages 219-236, November.
    4. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    5. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, April.
    6. Timothy Brennan, 1996. "Is Cost-of-Service Regulation Worth the Cost?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 3(1), pages 25-42.
    7. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, September.
    8. Bohi, Douglas R. & Burtraw, Dallas, 1992. "Utility investment behavior and the emission trading market," Resources and Energy, Elsevier, vol. 14(1-2), pages 129-153, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Burtraw, Dallas & Palmer, Karen L. & Heintzelman, Martin, 2000. "Electricity Restructuring: Consequences and Opportunities for the Environment," Discussion Papers 10854, Resources for the Future.
    2. Burtraw, Dallas & Palmer, Karen, 2005. "The Environmental Impacts of Electricity Restructuring: Looking Back and Looking Forward," RFF Working Paper Series dp-05-07, Resources for the Future.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stavins, Robert, 2004. "Environmental Economics," RFF Working Paper Series dp-04-54, Resources for the Future.
    2. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
    3. 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.
    4. Robert N. Stavins, 2011. "The Problem of the Commons: Still Unsettled after 100 Years," American Economic Review, American Economic Association, vol. 101(1), pages 81-108, February.
    5. Stavins, Robert, 2003. "Market-Based Environmental Policies: What Can We Learn from U.S. Experience and Related Research?," Working Paper Series rwp03-031, Harvard University, John F. Kennedy School of Government.
    6. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545, Elsevier.
    7. Revesz, Richard & Stavins, Robert, 2004. "Environmental Law and Policy," Working Paper Series rwp04-023, Harvard University, John F. Kennedy School of Government.
    8. Luca Taschini, 2010. "Environmental Economics and Modeling Marketable Permits," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(4), pages 325-343, December.
    9. Lehmann, Paul, 2008. "Using a policy mix for pollution control: A review of economic literature," UFZ Discussion Papers 4/2008, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    10. Stavins, Robert, 2001. "Lessons From the American Experiment With Market-Based Environmental Policies," RFF Working Paper Series dp-01-53, Resources for the Future.
    11. Weber, Thomas A. & Neuhoff, Karsten, 2010. "Carbon markets and technological innovation," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 115-132, September.
    12. Steven Shavell, 2010. "The Corrective Tax versus Liability As Solutions to the Problem of Harmful Externalities," NBER Working Papers 16235, National Bureau of Economic Research, Inc.
    13. Pierre Franc & Lisa Sutto, 2012. "Cap-and-trade system on CO2 emissions in maritime transport: potential impacts on shipping lines activities [Les permis d’émission de CO2 dans le transport maritime : quels effets possibles sur les," Post-Print halshs-01366275, HAL.
    14. Sterner, Thomas & Hoglund, Lena, 2000. "Output-Based Refunding of Emission Payments: Theory, Distribution of Costs, and International Experience," Discussion Papers 10670, Resources for the Future.
    15. Lindsey, Robin & Santos, Georgina, 2020. "Addressing transportation and environmental externalities with economics: Are policy makers listening?," Research in Transportation Economics, Elsevier, vol. 82(C).
    16. Pezzey, John C.V., 2006. "Neither the rock nor the hard place: using payment thresholds to balance the politics and the economics of emissions control," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139892, Australian Agricultural and Resource Economics Society.
    17. Schmidt, Klaus & Herweg, Fabian, 2021. "Prices versus Quantities with Morally Concerned Consumers," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242371, Verein für Socialpolitik / German Economic Association.
    18. Zylicz, Tomasz, 2010. "Goals and Principles of Environmental Policy," International Review of Environmental and Resource Economics, now publishers, vol. 3(4), pages 299-334, May.
    19. Jon D. Harford, 1997. "Firm ownership patterns and motives for voluntary pollution control," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(6), pages 421-431.
    20. J. Peter Clinch & Eoin O'Neill, 2010. "Assessing the Relative Merits of Development Charges and Transferable Development Rights in an Uncertain World," Urban Studies, Urban Studies Journal Limited, vol. 47(4), pages 891-911, April.

    More about this item

    Keywords

    Environmental Economics and Policy;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:rffdps:10776. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.