2015/34 | LEM Working Paper Series | ||||||||||||||||
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Preventing Environmental Disasters: Market-Based vs. Command-and-Control Policies |
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Francesco Lamperti, Mauro Napoletano and Andrea Roventini |
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Keywords | |||||||||||||||||
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Environmental Policy, Command and Control, Carbon Taxes, Disasters
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JEL Classifications | |||||||||||||||||
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O33, O44, Q30, Q54, Q56, Q58
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Abstract | |||||||||||||||||
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The paper compares the effects of market-based and command-and-control
climate policies on the direction of technical change and the
prevention of environmental disasters. Drawing on the model proposed
in Acemoglu et al. (2012, American Economic Review), we show that
market-based policies (carbon taxes and subsidies towards clean
sectors) exhibit bounded window of opportunities: delays in their
implementation make them completely ineffective both in redirecting
technical change and in avoiding environmental catastrophes. On the
contrary, we find that command-and-control interventions guarantee
policy effectiveness irrespectively on the timing of their
introduction. As command-and-control policies are always able to
direct technical change toward “green” technologies and to prevent
climate disasters, they constitute a valuable alternative to
market-based interventions.
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