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Coasean Bargaining to Address Environmental Externalities

Listed author(s):
  • Gary D. Libecap

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 21903.

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Date of creation: Jan 2016
Handle: RePEc:nbr:nberwo:21903
Note: DAE EEE PE
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  1. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, vol. 82(4), pages 713-719, September.
  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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