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 9: Conclusions

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


This book develops the theoretical foundations for the CCAP, which is superior to the PPP both methodologically and practically, in identifying the most appropriate policy for dealing with so-called external effects. We advance the thesis that environmental policy should be evaluated in the light of the principle of wealth maximization. Wealth maximization is found to be a good proxy to achieve maximal social welfare. Properly interpreted, it not only reflects people’s concerns about the size of GDP, but also their concerns about the distribution of income as well as environmental issues. The idea that there is inevitably a trade-off between efficiency and equality is incorrect: more wealth always makes it possible to distribute more income. Public policy should resist striving for distributional goals by using tools which can be inherently detrimental to wealth maximization, such as the PPP. Rather, it should rely on direct measures, that is, income tax and subsidy schemes. A comparison of the PPP with the CCAP from the viewpoint of wealth maximization clearly favors the latter. Whereas the CCAP can guarantee efficiency, the PPP as it is commonly understood and put into practice cannot. This result cannot be overstated. It receives an additional dimension from what can be called the ethics of wealth maximization: in a world struggling with the problem of scarcity, avoiding waste can be considered as a moral imperative. The cheapest cost avoider approach takes into account the fact that external costs are always the result of conflicting interests in the use of...

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