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Coasean Bargaining to Address Environmental Externalities

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  • Gary D. Libecap

Abstract

I examine Ronald Coase’s criticism of standard regulatory and tax policies to address environmental externalities. I elaborate some of Coase’s key points and discuss opportunities for Coasean exchange as an alternative mitigation approach. Regulation, tax, and Coasean exchange, such as through cap-and-trade regimes, are presented as substitutes, based on the relative transaction costs involved. Transaction costs are those of information, bounding, enforcing, and exchanging property rights. In general, transaction costs are not examined in depth in the environmental economics literature. This is particularly the case for the costs of political bargaining and lobbying that arise from implementing and administering government regulation and tax policies, although these costs have received somewhat more attention with cap and trade regimes. Coasean exchange and important market design issues are illustrated with examples.

Suggested Citation

  • Gary D. Libecap, 2016. "Coasean Bargaining to Address Environmental Externalities," NBER Working Papers 21903, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21903 Note: DAE EEE PE
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    References listed on IDEAS

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    1. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, pages 713-719.
    2. Aidt, Toke Skovsgaard, 2003. "Redistribution and deadweight cost: the role of political competition," European Journal of Political Economy, Elsevier, vol. 19(2), pages 205-226, June.
    3. Grainger, Corbett A. & Costello, Christopher J., 2014. "Capitalizing property rights insecurity in natural resource assets," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 224-240.
    4. Steven Medema, 2011. "A case of mistaken identity: George Stigler, “The Problem of Social Cost,” and the Coase theorem," European Journal of Law and Economics, Springer, vol. 31(1), pages 11-38, February.
    5. Steven G. Medema, 2014. "The Curious Treatment of the Coase Theorem in the Environmental Economics Literature, 1960--1979," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 39-57, January.
    6. Gary D. Libecap, 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 424-479, June.
    7. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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