Transport, Welfare and Externalities

Transport, Welfare and Externalities

Replacing the Polluter Pays Principle with the Cheapest Cost Avoider Principle

New Horizons in Law and Economics series

Dieter Schmidtchen, Christian Koboldt, Jenny Helstroffer, Birgit Will, Georg Haas and Stefan Witte

This book discusses a paradigm shift for dealing with the internalization of external costs in transport. Crucial to the analysis is the insight that the polluters are not the only cost drivers; both pollutees and the state can also contribute to reducing social costs. The authors show that applying the Cheapest Cost Avoider Principle (CCAP) instead of the Polluter Pays Principle (PPP) can lead to substantial welfare improvements.

Chapter 3: The Coasian Revolution

Dieter Schmidtchen, Christian Koboldt, Jenny Helstroffer, Birgit Will, Georg Haas and Stefan Witte

Subjects: economics and finance, environmental economics, transport, environment, environmental economics, transport, urban and regional studies, transport


Modern economic theory on the efficient treatment of negative externalities goes back to Coase’s 1960 article where the problem created by externalities is not perceived as one of a polluter imposing costs on pollutees, but rather as a consequence of two or more actors competing for the same scarce resource. In his 1960 article Coase also undermines widely accepted notions about causation and corrective justice. As Ogus aptly puts it: ‘There is no a priori reason for assuming that, because the polluter’s activity involves a physical interference, her claim on the environment is less valuable than that of the pollutees’ (Ogus, 2006, p. 167). Moreover, we are led to question the generally held view that state action in form of regulation, financial charges or taxes is necessary for solving the externality problem. Taking full account of the fact that the predicament of the parties involved in a negative externality is of a reciprocal nature, two further propositions can be derived. First, any conflict about the use of the same scarce resource should be resolved according to which of the two conflicting uses has the greater social value. If, for example, the transport industry values its use of the environment higher than the residents value an emissions free environment, then the transport industry should have the right to emit pollutants. Vice versa, if the residents place higher value on their use of the environment than the transport industry, then they should have the right to an emissions free environment. We will...

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