Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155241
Authors: 
Aidt, Toke S.
Dutta, Jayasri
Year of Publication: 
2001
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 78.2001
Abstract: 
In the past 15 years, incentive-based environmental policy instruments, such as pollution taxes and tradeable pollution permits, have become an important supplement to tradition command-and-control instruments in Europe and the U.S. This paper proposes a positive theory of environmental instrument choice that can be used to explain this trend. We imagine a democratic society that seeks to lower the level of pollution from industrial production to a pre-specified target. The target can be implemented by one of three instruments: [Q]: quantity controls; [P]: tradeable permits; and [T]: pollution taxes. We characterize political equilibrium as an evolving policy compromise between special-interests, representing polluters, and the electorate. We identify three factors that play a key role in explaining the recent trend in instrument choice: increasingly ambitious environmental targets, learning-by-doing driven reductions in transaction costs associated with permit trading, and (abatement) cost-reducing technological progress.
Subjects: 
Instrument choice
political economy
environmental policy
JEL: 
D78
H23
Q28
Document Type: 
Working Paper

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