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A Framework to Compare Environmental Policies
Southern Economic Journal (2001)
  • Don Fullerton, University of Texas at Austin
This paper analyzes and compares eight types of policies. Clearly no single policy instrument will work best in all cases. Under some circumstances, command and control (CAC) instruments might be necessary, in either of two forms: (a) emission restrictions, sometimes called "performance standards," or (b) technology restrictions that might be called "design standards." In other cases that are important to identify, these command and control instruments can be replaced by "incentive" instruments such as taxes, subsidies, or permits. As suggested by Arthur Pigou (1932), the pollution problem could be addressed by (a) taxes on the pollution, or (b) subsidies to abatement. The term "incentive instruments" includes both the Pigouvian tax and the subsidy to abatement, and it includes two other policies that involve permits such as those traded by electric utilities under the Clean Air Act Amendments of 1990. Those permits could be (a) "grandfathered," or handed out to existing firms in proportion to past emissions, or (b) sold at auction by the government. The paper evaluates these polices with respect to criteria such as (1) economic efficiency, (2) administrative efficiency, (3) monitoring and enforcement capability, (4) information requirements and the effects of uncertainty, (5) political and ethical considerations, (6) effects on prices that might shift the distribution of burdens between high and low income groups, between age groups, or between regions of the country, (7) other distortions such as taxes, imperfect competition, or trade barriers, and (8) flexibility in the regulations to deal with transitions and dynamic adjustments.
Publication Date
Citation Information
Don Fullerton. "A Framework to Compare Environmental Policies" Southern Economic Journal Vol. 68 Iss. 2 (2001)
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