On the Theory of an Optimal Environmental Policy

Jerrold M. Peterson
Dave A. Vose

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DOI: 10.2190/GUMQ-GDKJ-P16J-3V5P

Abstract

Many economists have been using economic analysis to advocate their use of either standard or effluent charges as strategies for protecting the environment. Recently a number of economists have begun to question the ability of these economic tools to accomplish the job. These economists argue that, at best, economic analysis will achieve an environmental policy which is no better than the one an ecologist could set. At worst, the economic analysis might abuse the environment and cause costly economic as well as ecological damage. This paper reexamines the theoretical approach in setting an optimal environmental policy. In this paper we find that society ought to use economic analysis in dveloping any environmental policy. Society must know the net marginal benefits of production and the marginal damage of an effluent before embarking on any environmental strategy. Such knowledge would allow society either to choose an optimal effluent standard or optimal effluent charge.

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