TOWARDS IMPLEMENTATION OF ENVIRONMENTAL POLICIES

For decades it has been known that environmental problems constitute a distortion in the allocation of resources. How to deal with these distortions and to improve the working of an economy has been controversial. Recent developments in economic theory, especially in the fields of bargaining, mechanism design, and economics of information, offer hope to find a solution to the urgent problems which are incentive-compatible and rely on a sound decision theoretic framework. This paper surveys recent results and discusses their chances for policy implementation. Both views from the policy maker and from the decision making firm are covered. This allows us to deal with the problem of social costs and external effects using the concepts and ideas of results on strategic behavior. Because of the complexity of the issues and the lack of a generally working mechanism, a pragmatic approach is favored.