Comparative Analysis of Air Pollution Regulation Policies Via Property Rights and Transaction Cost Theory

Tae-hyeong Kwon (Hankuk University of Foreign Studies)

Abstract: This paper compares alternative pollution regulation. Emission charges, emission standards, and tradable emission permits are addressed from the perspective of property rights and transaction cost theory. In the first part, the supply and demand curves of pollution under each policy are associated with different property right structures. The property right distribution is a key factor in determining the strength and weakness of alternative policies in terms of the polluter-pay-principle, acceptability, incentive intensity, and transaction costs. The transaction cost analysis of Williamson has been extended to encompass the governance structures of public sector transactions, and identifies regulation as one of the six types of public sector transaction: procurement, redistributional, regulatory, sovereign, judicial, and infrastructure. The second part evaluates the transaction costs of regulatory policies by comparing ex ante costs such as information and negotiation costs, as well as ex post costs, such as monitoring and enforcement costs. One key attribute determining the relative size of the transaction costs of tradable emission permits is the emissions monitoring technology used, most notably the CMS (Continuous Monitoring System). Some guiding principles for choosing policy instruments are also suggested on the basis of our comparison of alternatives in terms of the polluter-pay-principle, acceptability, incentive intensity, and specifically, transaction costs.

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