Public Economics and the Environment in an Imperfect World

By Eisen, Roland | Journal of Risk and Insurance, December 1997 | Go to article overview

Public Economics and the Environment in an Imperfect World


Eisen, Roland, Journal of Risk and Insurance


Public Economics and the Environment in an Imperfect World, edited by Lans Bovenberg and Sijbren Cnossen (Kluwer Academic Publishers, 1995).

The essays compiled in this volume focus on empirical work and policy issues. After a very informative introductory summary by the editors, Agnar Sandmo surveys the role of environmental considerations in the theory of public finance. He identifies environmental goods (such as clean air and water) as public (consumption) goods in the Samuelson sense, but points out that the production of these goods is a case of "negative" joint production between private and public goods. Besides this, he stresses the global and transnational nature of environmental problems: Victims of pollution are not necessarily the citizens of the country in which the pollution is generated (p. 29); furthermore, in numerous cases, polluters in many countries simultaneously pollute the global environment (p. 30). In the subsequent papers, these problems are taken up and discussed thoroughly.

The first point is taken up by Gunnar Eskeland and Shantayanan Devarajan (chapter 4), who, on the one hand, show when to follow a "strategy of taxing bads by taxing goods" (p. 68), and, on the other hand, when "emission reductions can be provided by a combination of instruments" (p. 66), that is, taxation and technical controls. To illustrate their point, the authors present case studies of Mexico City, Chile, and Indonesia. In the same vein is also the discussion by Bjorn Larsen and Anwar Shah (chapter 5), who advocate an elimination of energy subsidies and a moderate "national tax on carbon content of fossil fuels" (p. 121), because such "taxes would discourage fossil fuel consumption and reduce local pollution, while raising large amounts of revenues at, likely, lower administration costs than the prevalent taxes entail" (p. 130). To this point, sometimes called "double dividend," I will soon return.

Thomas C. Kinnaman and Don Fullerton present a very nice and easily understandable model (chapter 6) about "how a fee per-unit garbage affects aggregate recycling" (p. 135). They could show "that a user fee will never increase garbage, and will never decrease illicit burning or dumping. At some point, however, the garbage fee becomes high enough to induce some people to pay the fixed cost of dumping and thus to switch away from recycling. As a consequence, the garbage fee might decrease aggregate recycling" (p. 157).

In a rather short paper (chapter 7), James M. Poterba and Julio J. Rotemberg discuss the problems of taxing "intermediate and trival goods when both can be imported" (p. 161). They show that it is possible to tax intermediate goods when "it is possible to measure the amount of the taxed intermediate good that is used to produce an imported final good" (p. 162). They obtain, however, a negative result when final goods are produced jointly. Two industries showing such characteristics are petroleum refining and petrochemical production. …

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