Journal #J-01/2000
Theoretical Considerations Regarding the Effectiveness of Environmental Policy Instruments
Eirik Romstad
Department of Economics & Social Sciences Agricultural University of Norway PO Box 5033, N-1432 Ås, Norway http://www.nlh.no/ior/ e-mail: eirik.romstad@ior.nlh.no

Romstad, E. (2000): "Theoretical Considerations Regarding the Effectiveness of Environmental Policy Instruments" pp. 49-64 in Sterner, T. (ed.), Environmental Implications of Market Based Policy Instruments, Edward Elgar Publishers, Aldershot, England.

Abstract:
A frequently heard argument in favor of command and control regulations is that they result in improved environmental performance vis-a-vis incentive based regulations, due to the inherent overcompliance in command and control regulations. This paper shows that this argument generally does not hold.
Often environmental regulations take place under settings that differ substantially from the stylized conditions one finds in environmental economics textbooks or even most articles written on the topic. Such aspects include the degree of localness and variation in the environmental damages, the type and availability of information, the number of polluting firms, and the relative size of the regulatory and transaction costs.
This paper also shows how these factors influence the costs and environmental performance of various policy instruments, and produces insights on how to choose policy instruments in various settings.

Key words: Cost effectiveness, environmental performance, transaction costs, informational structure, dynamics, environmental taxes, tradable input factor and emission permits, agriculture.

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