Transport, Welfare and Externalities
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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.
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Chapter 6: Beyond Efficiency: Strengths and Weaknesses of the Principles

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

Extract

6. Beyond efficiency: strengths and weaknesses of the principles One advantage of the CCAP relative to the PPP, derived in the previous chapters, is that the PPP cannot guarantee efficiency, whereas the CCAP does. This result cannot be overstated since efficiency, in the static as well as in a dynamic sense, implies the avoidance of a waste of valuable resources, an increase in the value of production, positive growth rates and an increase in average income. There can be no doubt that an efficient transport industry furthers the common good (that is, social welfare) and, analogously, that it is necessary to maximize the wealth of society. Wealth can be used as a proxy for social welfare.1 Thus, the CCAP clearly beats the PPP as far as efficiency is concerned. However, one can ask whether efficiency is all that matters. Indeed, there are factors beyond efficiency which have to be taken into account in order to judge which of the two principles is preferable in total. For example, there may be an efficiency-equity trade-off. The question is how to deal with it. Wealth maximization is not the only goal of state activities: moral values such as human autonomy and dignity and distributional justice are of great importance. In many areas policy makers need to practice a trade-off between ‘economic’ and ‘non-economic’ goals. How should such trade-offs be carried out? In this chapter we address possible arguments for and against the implementation of the PPP as well as the CCAP under ‘non-economic’...

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