Impact of Economics on Environmental Policy

Environmental economists have seen their ideas translated into the rough-and-tumble policy world for over two decades. They have witnessed the application of economic instruments to several environmental issues, including preserving wetlands, lowering lead levels and curbing acid rain. This paper examines the impact of the rise of economics in the policy world on the making of environmental policy. The author focuses on two related, but distinct phenomena -- the increasing interest in the use of incentive-based mechanisms, such as tradable permits, to achieve environmental goals; and the increasing interest in the use of analytical tools in regulatory decision making, such as benefit-cost analysis.

The author argues that economists and economic instruments play an increasingly important role in shaping enviornmental, health and safety regulation. Although the role of economics is becoming more prominent, it does not follow that environmental policy will become more efficient. This apparent inconsistency can be explained by the political economy of environmental policy.