Behavioral and Distributional Effects of Environmental Policy Introduction

Abstract

This paper introduces to the main policy research issues that the interrelationship between environmental and economic problems has recently emphasized. Economists have traditionally encouraged the use of incentive based instruments in place of command and control regulation. The starting point for a discussion on efficient environmental policy has been the Pigouvian prescription: to set taxes on pollution equal to marginal environmental damages. In recent years, however, economists have come to recognize that the standard Pigouvian prescription needs to be modified in the face of other important economic and political considerations. The reasons for this modification of the standard Pigouvian prescription can be found in the nature of the environmental problems to be managed. These problems are often characterized by a transnational dimension, by links to other economic issues, and by their interrelationship with several types of economic externalities. All this implies that environmental policy has to be re-designed in order to be effective even in a world where the policymakers may have multiple interrelated targets and an incomplete set of policy instruments. This introduction is forthcoming in the book “Behavioral and Distributional Effects of Environmental Policy” edited by Carlo Carraro and Gilbert Metcalf. This volume includes ten papers that were prepared as part of a joint research project on environmental policy carried out by the Fondazione Eni Enrico Mattei (FEEM) and the National Bureau of Economic Research (NBER). The papers were presented at a conference hosted by FEEM at their headquarters in Milan, Italy on June 11-12, 1999. We are grateful to Martin Feldstein, president of the NBER, and James Poterba, program director for Public Economics at the NBER, for their constant support and advice over the course of this project. We also thank Domenico Siniscalco, director of the FEEM, for his support. Finally, we would like to acknowledge financial support from the NBER, FEEM, and the NBER/Yale Project in International Environmental Economics. Organizing a trans-oceanic conference requires tremendous logistical support and we were well-supported on both sides of the Atlantic Ocean. The NBER conference department staff provided outstanding support in preparing for the conference. Rob Shannon and Kirsten Davis were always ready with a calm demeanor and ready answer for the most complex question or problem. In Milan, Rita Murelli made our stay very enjoyable and handled numerous logistical issues on a short order with great efficiency. After the conference, Helena Fitz-Patrick of the NBER Publications Department has provided consistent support to the authors and editors as we move these papers and comments through the editorial process and into print.