Perspectives from Economics, Game Theory and Public Choice
New Horizons in Environmental Economics series
Edited by Christoph Böhringer, Michael Finus and Carsten Vogt
Chapter 5: Interest group preference for instruments of environmental policy: an overview
5 . Interest group preference for instruments of environmental policy: an overview Jan-Tjeerd Boom 1. INTRODUCTION In environmental politics, two things have to be decided: the level of abatement and the method of implementation. Economists have tried to shed light on both issues. The standard economic answer to the fust question is: one should abate up to the level where marginal social costs are equal to marginal social benefits. However, this answer is not always of much help, mainly because the marginal benefits are unknown. But economists have also taken up this challenge by trying to measure the value of what was previously immeasurable (see Hanemann 1994). So far, economists seem to have contributed more to answering the second question. Already more than a century ago, Sidgwick (1883) proposed using taxes to correct for negative externalities. This concept was later popularized by Pigou (1920), hence the name Pigouvian taxes. In the 1960s another instrument was added to the economist’s toolbox: tradable permits, a concept proposed by Crocker (1966) and Dales (1968a, 1968b) and formalized by Montgomery (1972). Since the rise of environmental policy in the 1960s and 1970s, economists have advocated, dare one say lobbied for, these instruments. Despite their efforts, not much has been gained. True, both taxes and tradable permit systems have been implemented (see Stavins 2000). However, taxes have often been set at such a low level that they have had no effect other than supplying government with revenue. Tradable permit systems are being used more and more,...