Toward a total-cost approach to environmental instrument choice

Most theories of environmental instrument choice focus exclusively on differential compliance costs. But compliance costs comprise only part of the total costs of environmental protection. Administrative costs - particularly the costs of measuring emissions and monitoring compliance - can differ significantly between environmental instruments. Those administrative cost differentials may offset the compliance cost advantages commonly associated with economic instruments, such as tradeable permits and effluent taxes. Moreover, measurement and monitoring constraints may increase ex ante uncertainty over the differential costs and benefits of alternative regulatory policies. That uncertainty may militate against selecting regulatory instruments that appear superior from the perspective of models focusing exclusively on compliance-cost differentials.