Thursday, October 4, 2012

Why is there so little Economics in environmental policy?

A persistent frustration for economists is that policy makers do not listen to them, especially politicians. That they then accuse economists for bad outcomes is then the cherry on top. One area were has been the most evident is in dealing with the environment. Why is it that policy makers (and environmentalists) are reluctant to adopt market-based solutions to environmental issues?

Dallas Burtraw looks at the case of the United States and concludes that this all boils down to politics, and more precisely the federalist institutions. In other words, economists do not take into account the institutional framework where their policies need to fit in, a lament that has also resonated with implementers of development policies. In the case of environmental policy in the US, the issue is mostly that the states have to implement federal policy, and it is much easier to issue emissions caps, compared to coax them to manage honestly cap-and-trade market or collect carbon taxes. For example, consider electricity markets, which are heavily regulated in some states, which means the price signal has less value. Or a state may try to attract industries by circumventing the impact of environmental policies if they are price-based. All-in-all, a political economy of the environment is as much needed as environmental economics.

1 comment:

Anonymous said...

From my personal experiences with environmental policy scholars, a lot of the problem is that they are not equipped to wrap their heads around economic analysis. A huge problem because economists probably do the lion's share of quantitatively rigorous policy analysis of any group of scholars.

My good friend was taught tat fair trade was a pillar of "environmental and social sustainability." He had no clue that producer rents are unwound through nonprice mechanisms though, as studied directly by a few Berkeley scholars and indirectly in volumes of economic literature on price fixing schema.