Preventing environmental disasters : Market based vs command and control policies

Francesco Lamperti (1) , Mauro Napoletano (2) , Andrea Roventini

1 UP1 - Université Paris 1 Panthéon-Sorbonne
2 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

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.

Keywords: Environmental Policy; Command and Control; Carbon Taxes

Keywords: Disasters

Domains: Economics and Finance

Francesco Lamperti, Mauro Napoletano, Andrea Roventini. Preventing environmental disasters : Market based vs command and control policies. 2015. ⟨hal-03459560⟩