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Getting the Prices Wrong: The Limits of Market-Based Environmental Policy

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  • Frank Ackerman
  • Kevin Gallagher

Abstract

Market based policies are fast becoming the recommended policy panacea for all the world's environmental problems. Implicit in such recommendations is the theory that free markets, adjusted for externalities, can always create an "efficient" allocation of society's resources. As a result, many contemporary policymakers advocate rolling back regulations in order to let the market protect the environment. There is a fundamental distinction between the use of the market as a tool to help achieve society's goals, and as a blueprint for society's goals; the market is a reasonable policy tool but not a reasonable blueprint. The market as blueprint fails because there are significant public purposes that cannot be achieved by prices and markets alone. Five major arguments show that getting the prices right is often a narrow or meaningless objective; society may intentionally and appropriately choose to "get the prices wrong" in order to pursue more important goals.

Suggested Citation

  • Frank Ackerman & Kevin Gallagher, "undated". "Getting the Prices Wrong: The Limits of Market-Based Environmental Policy," GDAE Working Papers 00-05, GDAE, Tufts University.
    • Handle: RePEc:dae:daepap:00-05
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    References listed on IDEAS

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    1. Gustafsson, Bo, 1998. "Scope and limits of the market mechanism in environmental management," Ecological Economics, Elsevier, vol. 24(2-3), pages 259-274, February.
    2. Frank Ackerman, 2001. "Still dead after all these years: interpreting the failure of general equilibrium theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 9(2), pages 119-139.
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    6. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-974, December.
    7. Ackerman, Frank & Moomaw, William, 1997. "SO2 emissions trading: does it work?," The Electricity Journal, Elsevier, vol. 10(7), pages 61-66.
    8. Vatn Arild & Bromley Daniel W., 1994. "Choices without Prices without Apologies," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 129-148, March.
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    10. repec:bla:scandj:v:88:y:1986:i:1:p:141-49 is not listed on IDEAS
    11. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 8, pages 499-589, Elsevier.
    12. Gallagher, Kevin P. & Ackerman, Frank, 2000. "Trade Liberalization and Pollution Intensive Industry in Developing Countries: A Partial Equilibrium Approach," Working Papers 15592, Tufts University, Global Development and Environment Institute.
    13. Richard Howarth & Richard Norgaard, 1993. "Intergenerational transfers and the social discount rate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 3(4), pages 337-358, August.
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    Cited by:

    1. Paragahawewa, Upananda Herath, 2006. "Market-Based Approaches to Pollution Control in the Lake Taupo Catchment in New Zealand," 2006 Conference, August 24-25, 2006, Nelson, New Zealand 31975, New Zealand Agricultural and Resource Economics Society.
    2. Frank Ackerman & Kevin Gallagher, "undated". "Mixed Signals: Market Incentives, Recycling, and the Price Spike of 1995," GDAE Working Papers 01-02, GDAE, Tufts University.
    3. Gallagher, Kevin P. & Ackerman, Frank, 2000. "Trade Liberalization and Pollution Intensive Industry in Developing Countries: A Partial Equilibrium Approach," Working Papers 15592, Tufts University, Global Development and Environment Institute.
    4. Frank Ackerman, 2001. "Still dead after all these years: interpreting the failure of general equilibrium theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 9(2), pages 119-139.
    5. Frank Ackerman & Sumreen Mirza, "undated". "Waste in the Inner City: Asset or Assault?," GDAE Working Papers 00-08, GDAE, Tufts University.
    6. John Ikerd, 2024. "Business Management for Sustainability," Sustainability, MDPI, vol. 16(9), pages 1-19, April.

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    More about this item

    JEL classification:

    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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