Distortions in the Economic System and the Need for Economic Analysis

Abstract

Environmental problems can be analysed in economic terms on three major levels:

• (1) The general policy level, where the links to environmental damage may not be particularly obvious, but nevertheless at times quite strong. This chapter and the following will be concerned with this level;

• (2) The environmental policy level, where conscious decisions are made to limit environmental degradation through taxation, subsidies, etc. As mentioned previously, we will not discuss the appropriate design of such policy in this book;

• (3) The project level, where adjustments can be made to optimize¹ environmental damage. The main emphasis in this text lies on this level, and we return to this theme in chapters 5 and 7.