Conclusion

In the next decades increasing shares of personal and societal wealth willbe spent mitigating environmental harms. These harms are often blamed on the ramifications of the market system. To some extent this is true but the complaints too often ignore the human betterment deriving from the activity that results in environmental degradation. At its core the environmental problem facing humanity is how to govern individual actions with the understanding that this harm is a by-product of human desires. Any rational inquiry into ways of addressing the problems must account for the interests of individuals, including those in political office and regulatory agencies. Despite the centrality of economic analysis to the policy questions involved, much of the discussion about the economic constraints of environmental problems is shallow: the feasibility and desirability of green policy is too often taken as given and the reality of corrective actions ignored.

Economists are sometimes – and sometimes deservedly – accused of being Panglossian, but rather than simply offering support for a laissez-faire approach, market solutions to environmental problems encompass different policy solutions to wide-ranging environmental challenges. They can achieve a given level of reduction more efficiently and in some cases are more politically viable. Environmental problems vary in the institutional scale of the governance needed, while the physical nature of the problem partly shapes the difficulty of establishing property rights and creating markets.

The aim of this publication has been to take these issues from their fundamentals and build up the analysis to include contemporary policy questions. Throughout it has stressed fundamental insights of the Coasean approach: any consideration of governance must be comparative; and all solutions are bound to diverge from naïve ideals. The best answer is contingent and the result of weighing trade-offs.

If feasible, market solutions, including market-based regulations, allow the rational use ofscarce resources and preserve incentives to innovate in the longer run. The capacity for market solutions to outcompete alternative policies depends not only on the pure economic argument for them, but also on questions of political economy.