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A substantial literature examines second-best environmental policy, focusing particularly on how the Pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation. Additional literature is motivated by the possibility that distributive concerns should amend the internalization prescription. It is demonstrated, however, that simple first-best rules - unmodified for labor supply distortion or distribution - are correct in a natural, basic formulation of the problem. Specifically, setting all commodity taxes equal to marginal harms (and subsidies equal to marginal benefits) can generate a Pareto improvement. Likewise, a marginal reform in the direction of the first-best can yield a Pareto improvement. For other reforms, a simple efficiency test characterizing when a Pareto improvement is possible is offered. Qualifications and explanations for the substantial departure from results in previous work are also elaborated.
In this book, Professors Baumol and Oates provide a rigorous and comprehensive analysis of the economic theory of environmental policy. They present a formal, theoretical treatment of those factors influencing the quality of life. By covering both the theory of externalities and its application to environmental policy, the authors have retained the basic structure and organization of the first edition, which has become a standard reference in the field. In this edition, however, they have updated their analysis to incorporate recent research in environmental economics.
A comprehensive analysis of environmental externality, combining theory, algorithms, and applications to provide a unified and balanced framework.
We analyze the role of National Treatment in the regulation of environmental product standards for an open economy. A social planner uses product standards to control emissions from the consumption of a traded good. We show that whether National Treatment of standards interferes with welfare-maximizing policy depends on the instruments available to the policy maker (consumption or emissions tax) and differences in the cost of complying with the standard. We also highlight the asymmetric incidence of the domestic and import product standard when taxes are suboptimal. This asymmetric incidence can also cause welfare-maximizing policy to violate National Treatment.
Simple unweighted cost-effectiveness analysis remains relevant and correct when one introduces costly redistribution and revenue generation.