Incentives and Regulation

The central themes in the course are problems caused by externalities and the regulatory response to correct these externalities.  The main components of the course are:

1. 1. Several kinds of externalities (pollution) will be defined and the implications of this pollution for the welfare in a society will be discussed. The externalities defined include uniform mixed pollution, non-uniform mixed pollution, public good externalities, private good externalities, point source pollution, non-point source pollution, flow externalities and stock externalities.

2. 2. Design of policy instruments to correct the above mentioned externalities from an economic point of view is discussed. Here we mainly focus on economic incentives represented by taxes, subsidies and tradeable permit schemes and these incentive schemes are evaluated by using theoretical models. The economic incentives are discussed under both certainty and uncertainty and the implications of the various instruments for the tax revenue generated in a society are discussed.

3. 3. Regulatory recommendations according to non-economic objectives including the firm´s response to environmental regulation are discussed. One issue investigated is here where regulation exists because the regulated agents benefits from this and here rent-seeking behaviour to obtain a gain from regulation is discussed.