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

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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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hal-02095913 , version 1 (10-04-2019)

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  • HAL Id : hal-02095913 , version 1

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Nathalie Berta. The least-cost theorems in environmental economics: A third way between idealized Pareto optimality and traditional regulation. Facts in environmental and energy economics. Models and practices, past and present, CIRED, CNRS, ESHET, Oct 2018, Paris, France. ⟨hal-02095913⟩
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