Incentives and Regulation

Course content

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 pollution for economic welfare in a society is discussed. The externalities defined include uniform mixed pollution, non-uniform mixed pollution, public good pollution, private good pollution, point source pollution, non-point source pollution, flow pollution and stock pollution.

  2. 2. Design of regulatory instruments to correct the above mentioned externalities is investigated. We mainly focus on economic incentives schemes represented by taxes, subsidies and tradeable pollution permits and these schemes are evaluated using theoretical models. The economic incentives schemes are discussed under both certainty and uncertainty. Furthermore, the implications of imperfect competition for the design of economic incentive schemes are investigated.


MSc Programme in Agricultural Economics
MSc Programme in Agriculture
MSc Programme in Environmental and Natural Resource Economics

Learning outcome

The objective of the course is to provide a comprehensive overview over the literature applying economic theory to environmental problems. By obtaining this knowledge it becomes possible for the students to evaluate the economic efficiency of various regulatory instruments to solve environmental problems.


  • Define various negative externalities.

  • Define damage and abatement costs of externalities using concepts from welfare economics.

  • Describe the consequences of using taxes, subsidies and tradable pollution permits as regulatory instruments under both certainty and uncertainty

  • Discuss the consequences of imperfect competition for the design of enviornmental regulations. 


  • Analyze various externality problems from an economic point of view with the purpose of discussing regulation.

  • Analyze the implications of uncertainty and imperfect competition for design of economic incentives schemes to solve environmental problems.


  • Apply economic theory to a discussion of regulation of externalities.

  • Evaluate the consequences of using economic incentive schemes to address environmental problems.

Lectures, exercises, and mandatory group work on a written group assignment.

The mandatory literature consists of lecture notes constructed by the course responsible. These notes will be uploaded iat Absalon before the course starts.

Furthermore, a number of background papers and book chapters will be uploaded in Absalon as supplementary reading.





This course requires a solid and formal mathematical understanding of microeconomics that could be obtained from a bachelor in economics, agricultural economics, mathematical economics or at least 30 ECTS of relevant microeconomic courses like microeconomics, environmental economics, resource economics, game theory, production economics.

Academic qualifications equivalent to a BSc degree is recommended.

Continuous feedback during the course of the semester
7,5 ECTS
Type of assessment
Written assignment, 4 hours in the exam week
Type of assessment details
4 hours take-home exam.
Exam registration requirements

One approved group assignment made during the block.

All aids allowed
Marking scale
7-point grading scale
Censorship form
External censorship

If 10 or fewer register for the reexamination the examination form will be oral. Otherwise like the ordinary exam. The oral reexam lasts for 20-25 minutes with 25 minutes for preparation and all aid allows.

If the student has not passed the group assignment, then the assignment must be carried out individually and it must be handed in three weeks prior to the deadline of registration for the re-exam. It must be approved before the exam.

Criteria for exam assessment

See learning outcome.

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 40
  • Preparation
  • 142
  • Theory exercises
  • 20
  • Exam
  • 4
  • English
  • 206


Course number
7,5 ECTS
Programme level
Full Degree Master

1 block

Block 3
No limitation – unless you register in the late-registration period (BSc and MSc) or as a credit or single subject student.
Study Board of Natural Resources, Environment and Animal Science
Contracting department
  • Department of Food and Resource Economics
Contracting faculty
  • Faculty of Science
Course Coordinator
  • Frank Jensen   (3-686c67426b687471306d7730666d)
Saved on the 14-02-2024

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Courseinformation of students