10.2190/7A56-LJF7-Q0M7-R2DT 7A56LJF7Q0M7R2DT 2 Effluent Charges and Political Realities—A Qualification 95 101 20020509 20020509 20020509 20020509 7A56LJF7Q0M7R2DT.pdf http://baywood.metapress.com/link.asp?target=contribution&id=7A56LJF7Q0M7R2DT 2 Terry A. Ferrar Peter G. Sassone Alan B. Brownstein Center for the Study of Environmental Policy, The Pennsylvania State University Georgia Institute of Technology <p>For some time now, economists concerned with the pollution problem have espoused the effluent charge as the "in principle" solution to environmental degradation. This paper examines the potential of the effluent charge ideas as a <i>practical, workable</i> policy. Specifically, the authors recognize that any potential environmental policy must pass certain political acceptability tests before it may be implemented and investigate the impact on the construction of an optimal effluent charge.</p><p>During the winter of 1972-73, New York City was faced with a low-sulfur residual fuel-oil shortage and employed a financial incentive scheme to encourage the use of environmentally desirable fuels. This paper examines the implications of this approach and demonstrates that the existence of a legally specified "principle of fairness" effectively <i>prohibited</i> the construction of an optimal effluent charge. Moreover, the authors show that an analytically identical "fairness" stipulation is a central feature of the Pure Air Tax Act of 1972 and extend the results of this broader policy issue.</p> James M. Griffen, "An Econometric Evaluation of Sulfur Taxes," <i>Journal of Political Economy</i>, LXXXII, No. 4 (July/August, 1974), 669-88. T. A. Ferrar and A. B. Brownstein, "Variance Design and Air Pollution Control," <i>Journal of the Air Pollution Control Association</i>, XXV, No. 6 (June, 1975). O. A. Davis and A. B. Whinston, "Externalities, Welfare and the Theory of Games," <i>Journal of Political Economy</i>, LXX, No. 3 (June, 1962), 241-62. T. A. Ferrar and P. G. Sassone, "The Political Economy of Effluent Charges," <i>Working Paper Series</i>, Center for the Study of Environmental Policy, The Pennsylvania State University, (May, 1974). D. Ethridge, "The Inclusion of Wastes in the Theory of the Firm," <i>Journal of Political Economy</i>, LXXXI, No. 6 (November/December, 1973), 1430-41. Ayers, R. U. and A. V. Kneese, "Production, Consumption and Externalities," <i>American Economic Review</i>, LIX, No. 3 (June, 1969), 282-97. Buchanan, J. M. and W. C. Stubblebine, "Externality," <i>Economica</i>, XXIX, No. 116 (November, 1962), 371-84. Coase, R., "The Problem of Social Cost," <i>Journal of Law and Economics</i>, III, (October, 1960), 1-44. Davis, O. A. and A. B. Whinston, "On Externalities, Information and the Government—Assisted Invisible Hand," <i>Economica</i>, XXXIII, No. 131 (August, 1966), 303-18.