NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Incidence of Pollution Control Policies

Ian W.H. Parry, Hilary Sigman, Margaret Walls, Roberton C. Williams III

NBER Working Paper No. 11438
Issued in June 2005
NBER Program(s):   PE   EEE

This paper reviews theoretical and empirical literature on the household distribution of the costs and benefits of pollution control policies, and ways of integrating distributional issues into environmental cost/benefit analysis. Most studies find that policy costs fall disproportionately on poorer groups, though this is less pronounced when lifetime income is used, and policies affect prices of inputs used pervasively across the economy. The policy instrument itself is also critical; freely allocated emission permits may hurt the poor the most, as they transfer income to shareholders via scarcity rents created by higher prices, while emissions taxes offer opportunities for progressive revenue recycling. And although low-income households appear to bear a disproportionate share of environmental risks, policies that reduce risks are not always progressive, for example, they may alter property values in ways that benefit the wealthy. The review concludes by noting a number of areas where future research is badly needed.

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Document Object Identifier (DOI): 10.3386/w11438

Published: Tietenberg, Tom and Henk Folmer (eds.) International Yearbook of Environmental and Resource Economics 2006/2007. Cheltenham, UK: Edward Elgar, 2006.

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