The least-cost theorems in environmental economics: A third way between idealized Pareto optimality and traditional regulation

Abstract : In the late 1960s, new environmental policies emerged that attempted to reach predetermined emissions standards in a cost effective way: i.e., the ‘standard-and-tax’ approach (Baumol and Oates [1971]) and the market system approach (Dales [1968]). Although they belong to different traditions, namely, Pigovian versus Coasean, and are frequently contrasted in the literature today, these least-cost solutions in fact emerged at the same time and for the same reasons. They both addressed the same dual issue: first, they tried to promote incentives-based policies as opposed to traditional standards that they considered to be inefficient; and at the same time, they attempted to find alternatives to the Pigovian tax, which is optimal but that they considered to be unworkable. So, more broadly, they emerged as a kind of compromise between the direct controls favored by regulators at that time and the idealized Pareto optimal policies.
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Submitted on : Wednesday, April 10, 2019 - 8:48:06 PM
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Nathalie Berta. The least-cost theorems in environmental economics: A third way between idealized Pareto optimality and traditional regulation. Economics and the environment since the 1950s: history, methodology, philosophy, Nathalie Berta, Romain Debref, Franck-Dominique Vivien (REGARDS, Reims University), Cahiers d'économie politique/Papers in political economy, Mar 2019, Reims, France. ⟨hal-02095912⟩

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