Journal Article

Environmental policy, government, and the market

Cameron Hepburn

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 26, issue 2, pages 117-136
Published in print January 2010 | ISSN: 0266-903X
Published online January 2010 | e-ISSN: 1460-2121 | DOI: https://dx.doi.org/10.1093/oxrep/grq016
Environmental policy, government, and the market

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  • Economic Development and Growth
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Environmental policy is made in a context of both market failure and government failure. On the one hand, leaving environmental protection to the free market, relying on notions of corporate social responsibility and altruistic consumer and shareholder preferences, will not deliver optimal results. On the other hand, nationalizing the delivery of environmental protection is likely to fail because nation states rarely have the depth and quality of information required to instruct all the relevant agents to make appropriate decisions. Thus, as for many areas of policy, appropriate models of environmental intervention will lie between these two extremes. While it is impossible to specify general rules concerning the precise form of intervention, in part because the type of intervention depends upon value judgements, this paper sets out some of the considerations that are particular to environmental policy, and explores several principles for policy design, including information, coordination, and principal–agent problems, with a particular focus on the international context.

Keywords: environmental policy; environmental markets; government intervention; cap and trade; climate change; coordination; prices; Q58; Q56; Q50

Journal Article.  9896 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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