LOJK10214U  Economic Theory of Environmental Policy

Volume 2013/2014
MSc Programme in Environmental and Natural Resource Economics
MSc Programme in Agricultural Economics
MSc Programme in Agriculture
The central themes of the course are causes of pollution and the design of incentive based policy instruments. The main components of the course are

1) Market failure as the explanation for pollution. Here several cases of market failure will be analyzed. Examples are externalities, common property goods and public goods.

2) The design of environmental policy instruments. Here the emphasis will be on instruments that set incentives to reduce emissions such as taxes, subsidies, tradable permit schemes and liability rules. Issues covered are the regulation of point and non-point pollution, emissions and ambient regulation, optimal regulation under uncertainty, uniformly and non-uniformly mixed pollutants and the political economy of instrument choice. Furthermore, in connection with taxes we will discuss the existence of a double dividend and under tradable permits the issue of market power will be analyzed.

3) International environmental problems. International environmental pollution causes some special problems compared with national pollution. the main problem here is that countries cannot be forced to reduce emissions when their pollution causes damage in other countries. In this part, we will discuss the origin of the problem and possible solutions such as side payments, issue linkage and coalition formation.

Learning Outcome
It is the objective of this course to provide a comprehensive presentation of the theoretical and methodological aspects of the economic theory of environmental economics, especially of environmental policy in order to enable students to evaluate the economic efficiency of environmental policies.

- Describe the meaning in Welfare Economics of Economic Efficiency and Market Imperfections
- Describe the use of Pigouvian Taxes and Quota Regulation
and Regulation.
- Define Damage Cost and Abatement Cost describe the terms in a Welfare Economics set-up.
- Describe Liabiliby
- Describe Political Economy
- Describe International Environmental Issues

- Explain the effects of regulating a market
- Analyse environmental problems to identify suitable economic instruments
- Compare effectiveness and efficiency of environmental regulation

- Apply economic regulation to environmental problems.
- Evaluate the welfare economic consequenses of applying economic regulation to environmental problems
Hanley, N., Shogren, J.F. and White, B.: Environmental Economics in Theory and Practice, Macmillan Press, 2006.

Baumol, W.J., Oates, W.E.: The Theory of Environmental Policy, 2nd Edition, 1988.

Plus additional papers and articles
Competences that equals
LOJB10259 Micro Economics
LOJF10218 Consumer Economics and Policy
Lectures and exercises
7,5 ECTS
Type of assessment
Written examination, 4 timer under invigilation
Exam registration requirements
2-3 mandatory written assignments must be handed in punctually during the course
All aids allowed
Marking scale
7-point grading scale
Censorship form
No external censorship
One internal examiner
Criteria for exam assesment
See learning outcome
  • Category
  • Hours
  • Lectures
  • 36
  • Theory exercises
  • 24
  • Exam
  • 4
  • Preparation
  • 142
  • Total
  • 206