Edited by John A. List and Michael K. Price
Chapter 13: Fixed instruments to cope with stock externalities: an experimental evaluation
Managing the exploitation of renewable natural resources, designing policies aimed at reducing water or air pollution, or fighting against global warming, requires taking into account stock externalities. Unlike static externalities whose detrimental effects disappear after some time, stock externalities generate persistent effects due to a particular accumulation process. Examples include emissions of greenhouse gases, groundwater withdrawals, fisheries exploitation and so on. In contrast to static externalities, which may be remedied by policies correcting inefficient decisions, for stock externalities no instantaneous policy is capable to remediate immediately the damage created in previous periods. Once the resource stock has been deteriorated current policies can only curb the dynamic externalities beyond the current period. Empirical and experimental findings showed that in a dynamic environment, resource exploitation can lead to dramatic inefficiencies, enhancing the need for effective policies to cope with them (Clark, 1974; Herr et al., 1997; Moxnes, 1998; Giordana, 2007). In this chapter, we analyse policy instruments targeted to achieve a second-best withdrawal path in the case of a common pool renewable resource.
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