Using Non Market Valuation to Inform the Choice Between Permits and Fees in Environmental Regulation |
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Authors: | John B Loomis Bryon Allen |
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Institution: | (1) Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, CO 80523, USA |
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Abstract: | The purpose of this short note is to open an exploration regarding the use of non market valuation to help guide the selection
of economically efficient pollution control instruments. As long as non market valuation techniques can correctly estimate
the slope of the marginal benefit of abatement curve, this information along with engineering cost estimates of the unit costs or slope
of the marginal abatement cost will provide useful information to policy makers in choosing between fees and permits. An illustrative
review of the literature suggests that both stated and revealed preference methods have estimated slopes of marginal benefit
functions for reducing several pollutants. To investigate the efficiency of permits versus fees, an illustrative review of
corresponding marginal abatement costs is also made. For air pollutants affecting visibility, the slope of the marginal benefit
curve is far greater than the slope of the marginal abatement costs, suggesting permits as the efficient instrument. For nitrates
in groundwater used for drinking, the marginal benefit curve is flatter than the rather steep marginal abatement cost, suggesting
fees/taxes would be a more efficient economic instrument. We hope this note stimulates more emphasis in non market valuation
on estimating the slope of the marginal benefit function to enhance environmental economists ability to make policy recommendations
regarding the choice of pollution instruments for specific pollutants.
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Keywords: | Emission permits Non market valuation Pollution taxes |
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