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Edited by Jeroen C.J.M. van den Bergh
Chapter 22: Public Economics and Environmental Policy
Stef Proost 1. Introduction Public economics has evolved as an economics discipline on its own since the pioneering textbook of Atkinson and Stiglitz (1980). It studies, using mainly microeconomic theory, the allocation functions of the ‘state’, as it is there that the optimal design of taxes and the allocation of public goods are located. It has had mainly a normative orientation: how can a decision maker who is equipped with a welfare function use traditional government instruments to improve the economic equilibrium? Although environmental economics is a discipline on its own, it has borrowed many insights from the public economics tradition and there are still many parallel developments. In this chapter we survey this interaction between disciplines and discuss the parallel developments. The emphasis is on the use of public economics insights for environmental policy. A recent survey of the public economics literature can be found in Myles (1 995) and a historical view on its development can be found in Dr&ze(1994). The first link between the two disciplines runs via the concept o public f goodand the definition of externalities. A public good (say a public concert) is generally considered as a good that, once provided for one consumer, can be made available for other consumers or firms at no extra cost. It is often also characterized by the non-rivalness or non-depletable property, to which one can add the non-excludability of beneficiaries. Pollution generated by one agent is a public bad in the sense that, once created,...
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