Please read Jaffe et al. (feel free to acknowledge and skip over the equations)

Question

Please read Jaffe et al. (feel free to acknowledge and skip over the equations) In "Environmental Policy and Technological Change," they conclude: "The empirical evidence is generally consistent with theoretical finding that market-based instruments for environmental protection are likely to have significantly greater positive impacts over time than command-and-control approaches on the invention, innovation, and diffusion of desirable environmentally friendly technologies.” What are the economic underpinnings of this conclusion? Are you convinced? Why or why not?

Please Type!!! all answers (more than 350 words) and giving reference improve your opinion.

Explanation / Answer

To comment on the part "The empirical evidence is ........friendly technologies" , a balanced analysis of both the policies(market based and Interventionist based through friendly technologies) needs to be discussed.

First: market based policies to protect environmental loss and correct market failure are a. Encouraging competition among firms to achieve efficiency.

b. labour market reforms in an economy

c. incentive related policies.

d. trade liberalisation, free exchange rates.

The interventionist based policies are:

a. Investment in human capital and provision of infrastructure.

b. Provision of stable economy and provision of socail safety net

c. industrial policies to support environmental technologies.

Now, as we are clear about the different policies that government or market can adopt to correct failure, we can compare both of them to reach to a certain conclusion.

It is proved throgh examples of many countries like USA, Japan that market based instruments can promote social wefare better as price mechanism allocated resources efficiently as per market need and through mechansims like carbon tax and tradable permits allocative efficiency can be achieved better. However, these policies have certain drawbacks like 1. abuse of monopoluy power 2. failure to provide public goods. 3. negative environmental externalities.

The intervention policies can actually correct these drawbacks as they focus on capacity building of humans and machines and hence can improve productivity of resources. However these policies are also not devoid of limitations. They have limitations like 1. excessive bureaucracy. 2. Poor planning. 3. Corruption.

Therefore I disagree with the comment above and believe that a proper balance between market and intervention based policies is necessary. To support this arguemnt following points can be made.

1. Market allocated resources efficiently but it is human and physical capital that makes productive efficiency.

2. All drawbacks of both the systems can be corrected by following a mixed approach.

3. Government intervention will make sure that growth is supplemented by conservation and sustainable use of resources. Market can force government to be quick and result oriented if a conflict between "Conservation vs Commercailisation" needs to be resolved.

4. To support this case examples of certain countries can be quoted. Eg. Scandinavian countries, These countries followed sustainable growth policies and unlike many developing countries like China, India which follow Grow now, clean up later way of thinking.

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