Special Workshop Abstract

The “Limits” in the title refer to two opposite interpretations. One is that Environmental Economics could be extended to new areas by applying Law and Economics methods. Second, economic analysis is limited in that the method is not applicable in certain areas.

The starting point in the environmental economics literature is usually a closer examination of charges or subsidies to ameliorate external effects. Parallel to this line of investigation one may also follow an approach based on the seminal work of Hotelling (1931), which examines the exploitation over time of non-renewable natural resources. However, a huge amount of research on the economics of legal regulations has emerged since the beginning of the 1970s and has added substantial knowledge to the economics of environmental laws pertaining to licensing, safety regulations, insurance, and environmental crime. Today, the externality problem is analysed in terms of the cost for the involved parties to undertake and control mutually beneficial agreements. When agreements cannot be made some form of intervention may be warranted. Pigovian taxes are treated as one of many measures, comparable, for instance, to zoning, safety regulations, and liability, as well as insurance and funds for the financing of environmental damage.

On the other hand, much attention in the environmental policy debate is paid to general principles such as sustainable development, polluter pays principle, precautionary principle, etc. Increasingly such policy declarations can be found in documents with legal binding force, such as constitutions or treaties. How shall such rhetoric imperatives be interpreted in economics? Their purpose may be emotional, pedagogic and political. 

Another issue is the valuation of benefits for future generations. Economists has for long tried to justify long term considerations. I argue that economics has not much to add to the matter. There are several philosophical and ethical questions that are beyond economics.