Calculating the Cost of Environmental Regulation

William Pizer and Raymond Kopp

RFF Working Paper Series from Resources for the Future

Abstract: Decisions concerning environmental protection hinge on estimates of economic burden. Over the past 30 years, economists have developed and applied various tools to measure this burden. In this paper, developed as a chapter for the Handbook of Environmental Economics, we present a taxonomy of costs along with methods for measuring those costs. At the broadest level, we distinguish between partial and general equilibrium costs. Partial equilibrium costs represent the burden directly borne by the regulated entity (firms, households, government), including both pecuniary and nonpecuniary expenses, when prices are held constant. General equilibrium costs reflect the net burden once all good and factor markets have equilibrated. In addition to partial equilibrium costs, these general equilibrium costs include welfare losses or gains in markets with preexisting distortions, welfare losses or gains from rebalancing the government's budget constraint, and welfare gains from the added flexibility of meeting pollution constraints through reductions in the use of higher-priced, pollution-intensive products. In addition to both partial and general equilibrium costs, we also consider the distribution of costs across households, countries, sectors, subnational regions, and generations. Despite improvements in our understanding of cost measurement, we find considerable opportunity for further work and, especially, better application of existing methods.

Keywords: social cost; cost-benefit; cost-effectiveness; environmental regulation (search for similar items in EconPapers)
JEL-codes: D58 H41 L50 Q20 Q28 (search for similar items in EconPapers)
Date: 2003-03-01
New Economics Papers: this item is included in nep-env and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Chapter: Calculating the Costs of Environmental Regulation (2005)
Working Paper: Calculating the Costs of Environmental Regulation (2003)
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