Handbook of Environmental and Resource Economics
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Handbook of Environmental and Resource Economics

Edited by Jeroen C.J.M. van den Bergh

This major reference book comprises specially commissioned surveys in environmental and resource economics written by an international team of experts. Authoritative yet accessible, each entry provides a state-of-the-art summary of key areas that will be invaluable to researchers, practitioners and advanced students.
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Chapter 23: Positive Analyses of Instrument Choice in Environmental Policies

F.J. Dietz and H.R.J. Vollebergh


23 Explaining instrument choice in environmental policies Frank J Dietz and Herman R.J. Vollebergh' 1. The Dominance of command-and-control instruments Current environmental policies in industrialized countries are dominated by command-and-control (CAC) instruments (Downing and Hanf, 1983; Opschoor and Vos, 1989; Opschoor et al., 1994). Regulatory techniques, such as uniform reduction percentages across pollution sources, input restrictions, product requirements and technology-specific prescriptions, adjust the behaviour of individual economic agents corresponding to particular environmental goals, usually emission standards. In contrast, the economics literature is dominated by the view that environmental goals could be achieved at lower costs if economic or marketbased instruments were more often used.2 Instruments such as emission charges, product charges, tax differentiation, subsidies, deposit-refund systems and tradable pollution rights change the (price) incentive structure economic agents face. These more indirect interventions leave room for a flexible response to environmental demands of society, mobilizing the (search for) knowledge of technological feasibilities and local physical constraints of individual economic agents to accommodate their polluting activities to particular environmental policy goals. In turn, flexibility creates cost-efficiency, as has been shown in the influential work of Baumol and Oates (197 1; 1988, pp. 159-76). Looking at the dominance of the CAC approach in environmental policies, the question arises why the frequent pleas for the application of market-based instruments have had so little impact on (the design of) environmental policies in the last two decades? Ignorance is not a valid explanation, as both Kelman (1981) and Hanley et al. (1990) have shown for quite...

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