Market-based Approaches to Environmental Regulation

Author(s): Ted Gayer;John K. Horowitz

Source:
    Journal:Foundations and Trends® in Microeconomics
    ISSN Print:1547-9846,  ISSN Online:1547-9854
    Publisher:Now Publishers
    Volume 1 Number 4,

Document Type: Article
Pages: 126(201-326)
DOI: 10.1561/0700000013

Abstract: Economists argue that policymakers should take advantage of market principles in designing environmental regulations. Such market-based approaches?- environmental taxes and cap-and-trade?- use economic incentives to achieve environmental goals at lower costs. Market-based approaches have now become common due to near-unanimous advocacy by economists and early positive policy experiences. Despite this acceptance, policymakers have often merged market-based incentives onto existing non-market approaches resulting in a set of mixed policies whose economic properties are often difficult to unravel. Thus, even the most prominent market-based regulations contain many non-market elements. The authors review the economics literature on the rationale for and optimal design of environmental taxes and cap-and-trade systems. They then discuss the structure and economics of the major U.S. market-based policies.

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