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2014-10-22 | video

Environmental Policy Lecture 10 part 2

Policy Instruments 10 part 2

Professor Sterner starts part 2 by emphasizing what he said in the end of part 1 about how media and politicians often confuse those two aspects and state for example that taxes are good because they give revenue or that permits are better for industry and so on, but they then miss that there are both tax and permit schemes which are adapted to compensate/suit all parts.

When these mistakes are made the economic theory which, as Weitzman has shown can support either or for a specific case, is forgotten and played out by misunderstandings. One can very well use price type instruments like a tax and compensate the firms with subsidies and so the rent goes back into the market. Similar schemes apply for permits.

There are also mixes of P and Q types of instruments.

Sterner also goes into political aspects. Then some calculations, illustrating how big economical cost different instruments might have reaching a specific target under a certain setting. When is an economist needed? Sterner shows that when abatement cost curves between firms is heterogeneous, differences in cost might be huge, if not any instrument might serve and you don´t need the market principles.

The last six minutes, from minute 25 and on is an introduction of a case study, meant to do in groups of three. The instruction is there for those who wants to try calculating on their own, even though it misses some of the purpose not taking part of the final discussion.