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Second-best theory and the use of multiple policy instruments

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Abstract

In many cases policy makers employ multiple instruments to address a single environmental problem, but much of the economics literature on instrument choice focuses on comparing properties of single policy instruments. We argue that under a fairly broad set of circumstances the use of multiple policy instruments can be justified as optimal in a second-best world. We examine two broad categories of second-best policy making: cases with multiple market failures only some of which can be corrected at any one time; and cases with exogenous (often political) constraints that cannot be removed. The fact that the use of multiple policy instruments can be justified economically in these two cases does not imply, however, that all multiple instruments employed in actual practice are economically justified.

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  1. Nicholas School of Environment and Earth Sciences, Duke University, P.O. Box 90328, Durham, NC, 27708, USA

    Lori Snyder Bennear

  2. John F. Kennedy School of Government, Harvard University, 79 John F. Kennedy Street, Cambridge, MA, 02138, USA

    Robert N. Stavins

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  1. Lori Snyder Bennear
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Correspondence to Robert N. Stavins.

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Bennear, L.S., Stavins, R.N. Second-best theory and the use of multiple policy instruments. Environ Resource Econ 37, 111–129 (2007). https://doi.org/10.1007/s10640-007-9110-y

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