Transitional Politics: Emerging Incentive-Based Instruments in Environmental Regulation

49 Pages Posted: 29 Oct 2001

See all articles by Toke Skovsgaard Aidt

Toke Skovsgaard Aidt

University of Cambridge - Faculty of Economics and Politics

Jayasri Dutta

University of Birmingham - Department of Economics

Date Written: October 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.

Keywords: Instrument choice, political economy, environmental policy

JEL Classification: D78, H23, Q28

Suggested Citation

Aidt, Toke Skovsgaard and Dutta, Jayasri, Transitional Politics: Emerging Incentive-Based Instruments in Environmental Regulation (October 2001). Available at SSRN: https://ssrn.com/abstract=288531 or http://dx.doi.org/10.2139/ssrn.288531

Toke Skovsgaard Aidt (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 1223 33 5231 (Phone)
+44 1223 33 5475 (Fax)

Jayasri Dutta

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom
+44 0121 4 146640 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
338
Abstract Views
2,429
Rank
162,865
PlumX Metrics