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Political motives in climate and energy policy

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    Standard economic theory provides clear guidance on the design of cost-efficient policy in the presence of imperfect markets and externalities. However, observed policies reveal extensive discrepancies between principles and practise. Based on interviews with core politicians from the Norwegian parliament, we investigate causes for the lack of cost efficiency in climate and energy policy. We find that politicians agree with the notion of cost efficiency in principle, but rather than ascribing efficient instruments directed at specific policy goals, they include concerns for industrial and regional development, income distribution and employment in the environmental policy design. Lacking insight in the functioning of economic instruments and perceptions of a non-binding budget constraint also violate the requirements for efficient policy decisions. The findings point to the role of economists and social scientists to communicate the functioning of complex instruments. Improved compensation procedures could help reduce the politicians’ incentives to undermine efficiency in order to avoid unwanted distributional effects.

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    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 721.

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    Date of creation: Dec 2012
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    Handle: RePEc:ssb:dispap:721
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    1. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
    2. Helfand, Gloria E. & Berck, Peter & Maull, Tim, 2003. "The theory of pollution policy," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 6, pages 249-303 Elsevier.
    3. Elisabeth Gsottbauer & Jeroen Bergh, 2011. "Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(2), pages 263-304, June.
    4. Torstein Bye & Annegrete Bruvoll, 2008. "Multiple instruments to change energy behaviour: The emperor’s new clothes?," Discussion Papers 549, Research Department of Statistics Norway.
    5. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    6. Nyborg, Karine, 2000. "Homo Economicus and Homo Politicus: interpretation and aggregation of environmental values," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 305-322, July.
    7. Daugbjerg, Carsten & Svendsen, Gert Tinggaard, 2001. "Designing green taxes in a political context: From optimal to feasible environmental regulation," Working Papers 01-17, University of Aarhus, Aarhus School of Business, Department of Economics.
    8. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    9. Buchanan, James M & Tullock, Gordon, 1975. "Polluters' Profits and Political Response: Direct Controls Versus Taxes," American Economic Review, American Economic Association, vol. 65(1), pages 139-47, March.
    10. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
    11. Charles L. Ballard & Don Fullerton, 1993. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
    12. Timothy Besley, 1994. "Three approaches to public economics," International Tax and Public Finance, Springer, vol. 1(2), pages 197-204, October.
    13. Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
    14. Hahn, Robert W., 2000. "The Impact of Economics on Environmental Policy," Journal of Environmental Economics and Management, Elsevier, vol. 39(3), pages 375-399, May.
    15. Sergey V. Paltsev, 2001. "The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 53-80.
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