Lecture E1/E2 (2020-11-24): Principles of Market-Based Environmental Policy

 In this wrap-up lecture, we briefly cover government policy approaches for mitigating sustainability problems. We start with the Coasean ideal (Coase Theorem and Coasean Bargaining) where government has little-to-no regulatory effect and socially efficient outcomes are still achieved. We then discuss problems with the Coasean approach (appreciable transaction costs) and discuss alternative government approaches -- including prescriptive regulations (command and control) like technology and performance standards, and information-based approaches like mandatory right-to-know laws and voluntary eco-labeling strategies. That then allows us to discuss Pigouvian approaches that internalize negative externalities with taxes (e.g., emissions taxes). We discuss how these Pigouvian taxes are corrective (not distortionary) and may even have a double-dividend effect. We close with a brief discussion of cap-and-trade (allowance trading), which achieves the same outcome as Pigouvian taxes by creating a Coase-like market for allowances.

Whiteboard notes for this lecture can be found at: https://www.dropbox.com/s/69qjs1c5e0p46yl/LectureE1E2-2020-11-24-Principles_of_Mkt-Based_Env_Policy.pdf?dl=0