Working Paper: NBER ID: w28130
Authors: Christopher Costello; Matthew Kotchen
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.
Keywords: No keywords provided
JEL Codes: Q50; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| coasean provision (D23) | efficiency of policy instruments (H21) |
| coasean provision (D23) | efficiency of taxes (H21) |
| coasean provision (D23) | efficiency of caps (P18) |
| regulatory stringency level (L51) | effectiveness of policy instruments (F68) |
| citizens preferences (D72) | policy instrument choice (D78) |
| industry preferences (L89) | policy instrument choice (D78) |
| coasean provision (D23) | preference for taxes under weak regulatory stringency (H23) |
| uncertainty (D89) | favoring price instruments over quantity instruments (C54) |
| coasean provision (D23) | mitigating welfare losses from policy misalignment (D69) |