Policy Instrument Choice with Coasean Provision of Public Goods

Christopher Costello and Matthew Kotchen

No 28130, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the interplay between environmental policy instrument choice (i.e., prices vs. quantities) and private provision of public goods, which in this context we denote "Coasean provision." Coasean provision captures private provision of environmental public goods due to consumer preferences for environmentally friendly goods and services, incentives for corporate environmental management, environmental philanthropy, and even overlapping jurisdictions of policy. We show theoretically that even in a world of perfect certainty, the presence of Coasean provision distinctly affects instrument choice, based on both the efficiency criterion and distributional consequences. We also generalize the analysis to account for uncertainty using the classic Weitzman (1974) framework. Our findings suggest that the increasing prevalence of Coasean provision motivates a need to rethink the design of effective and efficient environmental policy instruments. This arises because policy instrument choice can have a significant impact on the environmental commitments of individuals, companies, and states, and vice-versa, with clear implications for overall economic welfare and policy preferences among polluters, citizens, and government revenue.

JEL-codes: Q50 Q58 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-env
Note: EEE
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Published as Christopher Costello & Matthew Kotchen, 2022. "Policy Instrument Choice with Coasean Provision of Public Goods," Journal of the Association of Environmental and Resource Economists, vol 9(5), pages 947-980.

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