Policy Instruments

  • Horst Siebert


In this chapter, we study how the basic ideas of allocation theory can be implemented and which policy instruments can be used to reach a desired environmental quality. The set of available policy instruments is reviewed. The basic message of allocation theory for practical policy is that environmental scarcity must be taken into consideration in individual decisionmaking. We study in some detail the regulatory approach, emission taxes, and pollution licenses. Furthermore, water associations are considered. They represent an interesting institutional arrangement by which the costs of environmental-quality targets can be attributed via cost sharing to individual polluters.1


Policy Instrument Abatement Cost Regulatory Approach Environmental Medium Marginal Abatement Cost 
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  1. 1.
    On environmental-policy instruments, compare Tietenberg (1990).Google Scholar
  2. 2.
    This procedure is for instance followed in the German Bundesimmissionsschutzgesetz.Google Scholar
  3. 3.
    A more detailed analysis can be found in Siebert (1976c). Also compare Siebert (1982b).Google Scholar
  4. 4.
    Organization of Economic Cooperation and Development, Instruments for Controlling Sulfur Dioxide Emissions from Fuel Combustion in Stationary Sources: A Case Study of Norwegian Measures, prepared by F. F. FOrsund and S. Strom (Paris, 1973 ), p. 23.Google Scholar
  5. 5.
    Ibid. p. 24.Google Scholar
  6. 6.
    Information from industry.Google Scholar
  7. 7.
    The question arises of whether a similar argument holds for the product market. Assume that a sector of the economy happens to be located in an environmental region. Then the large firm may use pollution rights to restrict the output of its competitors. The large firm has an incentive to buy more pollution rights than it needs for production since pollution rights will not be available to its competitors. Consequently, in this case, pollution rights may strengthen the position of a dominant firm.Google Scholar
  8. 8.
    Compare for instance the “Tunnelofen” case in German environmental law.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 1992

Authors and Affiliations

  • Horst Siebert
    • 1
  1. 1.Kiel Institute of World EconomicsKiel 1Germany

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