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  • Print publication year: 1988
  • Online publication date: June 2012

13 - Stochastic influences, direct controls, and taxes


This chapter seeks to show that, in addition to the pricing measures advocated in the preceding chapters, there is room in a well-designed environmental policy for at least one instrument that has attracted virtually no defenders among economists – the direct controls, so popular outside the profession.

After the demonstration in the preceding chapters that pricing methods have important efficiency advantages over direct controls, our advocacy of the use of the latter may appear somewhat inconsistent. However, we are not suggesting that the preceding discussion is basically incorrect, but rather that it omits an important consideration. Environmental problems do not always develop smoothly and gradually. Instead, they are often characterized by infrequent but more or less serious crises whose timing is unpredictable. Such emergencies may require rapid temporary changes in the rules of the control mechanism, and it is here that pricing measures appear subject to some severe practical limitations. In this chapter, we will show how the uncertainty associated with environmental conditions greatly complicates the implementation of a program of fees or subsidies.

We will not conclude from this that such programs are useless. We still believe that they have an important role to play and that economists have been right in trying to convince policy makers of their advantages. Rather, we suggest that the ideal policy package contains a mixture of instruments, with taxes, marketable permits, direct controls, and even moral suasion each used in certain circumstances to regulate the sources of environmental damage.