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The Elgar Companion to Law and Economics, Second Edition

Edited by Jürgen G. Backhaus

This thoroughly updated and revised edition of a popular and authoritative reference work introduces the reader to the major concepts and leading contributors in the field of law and economics. The Companion features accessible, informative and provocative entries on all the significant issues, and breaks new ground by bringing together widely dispersed yet theoretically congruent ideas.
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Chapter 23: Environmental Policies Choice as an Issue of Informational Efficiency

Donatella Porrini


23 Environmental policies choice as an issue of informational efficiency Donatella Porrini Choosing between different environmental policy instruments The problem of the choice of environmental policy instruments has been an issue since Pigou (1932) analysed the need for state intervention when private costs diverge from social costs, and suggested that the solution would be to internalize the externalities through taxation. Coase (1960) criticized the proposed state intervention, and affirmed that there is no reason to suppose that governmental regulation is called for simply because the problem is not very well handled by the market or the firm. The key feature is the presence of transaction costs that make one policy better than another. The ensuing debate has been conducted along these two opposite views: on the one hand, the supporters of the idea that the choice of policy instruments to be applied following a market failure is a public matter and the state, as policy designer, should select the optimal instrument and take responsibility for its imposition in the public interest; versus, on the other, the supporters of market-based instruments, trying to fight a battle against a sort of ‘antimarket’ mentality based on a reluctance to apply market-oriented instruments (Lewis, 1996). If we want to continue along these lines the problem would be to compare the efficiency of instruments that can be considered ‘public oriented’ and those that can be considered ‘market oriented’, where the first are characterized by a public agency with a public definition...

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