Economic Ideas for a Complex Climate Policy Regime

Resources for the Future DP 13-03-REV2

27 Pages Posted: 28 Mar 2013 Last revised: 21 Aug 2013

See all articles by Dallas Burtraw

Dallas Burtraw

Resources for the Future

Matt Woerman

University of Massachusetts Amherst - Department of Resource Economics

Date Written: July 2013

Abstract

The parsimony of economic theory provides general insights into an otherwise complex world. However, the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy, with a US focus: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest an important pathway of influence for economic theory is to infuse incentive-based thinking into the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.

Keywords: institutions, federalism, subsidiarity, shadow prices, incentives, regulation

JEL Classification: Q54, H77, D02

Suggested Citation

Burtraw, Dallas and Woerman, Matt, Economic Ideas for a Complex Climate Policy Regime (July 2013). Resources for the Future DP 13-03-REV2, Available at SSRN: https://ssrn.com/abstract=2239756 or http://dx.doi.org/10.2139/ssrn.2239756

Dallas Burtraw (Contact Author)

Resources for the Future ( email )

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Matt Woerman

University of Massachusetts Amherst - Department of Resource Economics ( email )

Stockbridge Hall
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Amherst, MA 01003
United States

HOME PAGE: http://sites.google.com/site/mattwoerman

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