Getting the Prices Wrong: The Limits of Market-Based Environmental Policy

Frank Ackerman () and Kevin Gallagher
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Kevin Gallagher: The Global Development And Environment Institute at Tufts Universty

Development and Comp Systems from EconWPA

Abstract: Market based policies are fast becoming the recommended policy panacea for all the world’s environmental problems. Implicit in such recommendations is the theory that free markets, adjusted for externalities, can always create an “efficient” allocation of society’s resources. As a result, many contemporary policymakers advocate rolling back regulations in order to let the market protect the environment. There is a fundamental distinction between the use of the market as a tool to help achieve society’s goals, and as a blueprint for society’s goals; the market is a reasonable policy tool but not a reasonable blueprint. The market as blueprint fails because there are significant public purposes that cannot be achieved by prices and markets alone. Five major arguments show that getting the prices right is often a narrow or meaningless objective; society may intentionally and appropriately choose to “get the prices wrong” in order to pursue more important goals.

Keywords: Economic theory; Environmental Policy; Sustainability (search for similar items in EconPapers)
JEL-codes: Q0 O0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-pke and nep-reg
Date: 2001-06-13
Note: Type of Document - PDF; pages: 18; figures: n/a. Other working papers available at www.gdae.org
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpdc:0106005

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