So far we have applied a neutral efficiency perspective to the social choice of instruments. We switch now to considering who pays the costs and reaps the benefits of different instruments. We look at instruments as a function of the incidence of costs and benefits. We will study the efficiency of policy instruments taking into account that both firms and households are different. We will find that this is decisive for the political acceptability of policy instruments. An important current example is the discussion we have had in Sweden where the new government has reduced drastically the taxes of fuels as well as the blending mandate (Reduktionsplikten in Swedish). Both of these actions were electoral promises to reduce the cost of fuel at the pump. They have however been criticized since they will make it impossible to achieve at least short-run climate goals. This is a prime example of how distributional concerns may come into conflict with the implementation of very important environmental reforms.

We will also start with an Initiation of the lobbying case-study exercise that illustrates how firms may use their power to try to affect the policy maker.

Reading: SC, Ch. 9, 12

Sterner & Coria, Chapter 12.pdf

AI podcast:

Before coming to Lecture 9 (Feb 6), please:

Watch Clips 17 and 18, answer the short quiz and start thinking about the exercises.

Best,

Thomas