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Transport, Welfare and Externalities

Replacing the Polluter Pays Principle with the Cheapest Cost Avoider Principle Dieter Schmidtchen, Director, Center for the Study of Law and Economics, Saarland University, Germany, Christian Koboldt, DotEcon Ltd, UK, Jenny Helstroffer, Université du Luxembourg, Birgit Will, Center for the Study of Law and Economics, Saarland University, Germany, Georg Haas, Simon-Kucher & Partners, Germany and Stefan Witte, Center for the Study of Law and Economics, Saarland University, Germany
This book discusses a paradigm shift for dealing with the internalization of external costs in transport. Crucial to the analysis is the insight that the polluters are not the only cost drivers; both pollutees and the state can also contribute to reducing social costs. The authors show that applying the Cheapest Cost Avoider Principle (CCAP) instead of the Polluter Pays Principle (PPP) can lead to substantial welfare improvements.
Extent: 144 pp
Hardback Price: £77.00 Web: £69.30
Publication Date: 2009
ISBN: 978 1 84844 411 9
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  • Economics and Finance
  • Environmental Economics
  • Transport
  • Environment
  • Environmental Economics
  • Transport
  • Urban and Regional Studies
  • Transport
This book discusses a paradigm shift for dealing with the internalization of external costs in transport. Crucial to the analysis is the insight that the polluters are not the only cost drivers; both pollutees and the state can also contribute to reducing social costs. The authors show that applying the Cheapest Cost Avoider Principle (CCAP) instead of the Polluter Pays Principle (PPP) can lead to substantial welfare improvements.

This book develops the foundations for the CCAP, which is shown to be superior to the PPP, both methodologically and practically, in identifying the most appropriate policy for dealing with external effects in transport. The PPP neglects the fact that external costs are jointly caused by all involved parties and that the externality problem is of a reciprocal nature: to avoid harm to a pollutee necessarily inflicts harm on the polluter. The real problem for welfare maximization – addressed by the CCAP – is to avoid the most serious harm. The CCAP guarantees efficiency, fair competition and equity. Its use of some form of cost–benefit analysis also helps to avoid regulatory failure. The CCAP incorporates ‘polluter pays’ as one possible outcome; however, this is not a foregone conclusion. Two case studies – showing that the methodology of the CCAP can be applied in practice – and a critical assessment of the European greening transport policy complete this volume.

Discussing the relevance of the economic analysis of law for transport policy, this book will appeal to academics in the fields of law and economics, environmental policy and regulatory impact assessment, and European transport policy. Policymakers and civil servants concerned with transport policy, environmental policy and regulatory impact assessment will also find this book valuable.
‘As a lawyer who has for many years been working on the interface between law and economics, I have observed with impatience the increasing divergence between academic economics and governmental policy-making. Too often economists are too obsessed with the mathematical modelling of their ideas and insufficiently concerned with the applications. This book constitutes a major and refreshing exception to that trend. Dieter Schmidtchen and his colleagues at Saarbrücken have addressed some issues of European transport policy by re-examining the fundamental ideas on which current analysis appears to be based and finding them wanting because they take too narrow a view on the options available.’
– From the foreword by Anthony Ogus, University of Manchester, UK

‘An excellent and comprehensive book of both theory and application for the Cheapest Cost Avoider principle (CCAP), being better for the society’s welfare than the commonly applied Polluters Pay Principle for dealing with transport external impacts. It is easily readable although scientifically rigorous with useful examples. The relation to the European Transport Policy is quite valuable. The book deserves a prominent place in the literature of applied transport economics, and I highly recommend it for students following these disciplines.’
– Dimitrios A. Tsamboulas, National Technical University of Athens, Greece

‘This book discusses for the first time the relevance of the economic analysis of law for transport policy. The difference between applying the polluter-pays-principle and Calabresi’s notion of the cheapest cost avoider are clearly explained and distributional consequences are also considered. Moreover, in addition to a brilliant economic analysis, the book also discusses important cases and the consequences of their analysis for European transport policy. It is a must-read for anyone interested either in law and economics generally or transport policy in particular.’
– Michael Faure, Maastricht University and Erasmus University Rotterdam, The Netherlands
Contents: Foreword by Anthony Ogus 1. Introduction 2. The Pigovian Tradition and the Polluter Pays Principle 3. The Coasian Revolution 4. Reaching Efficiency: Coase versus Pigou 5. Replacing the Polluter Pays Principle with the Cheapest Cost Avoider Principle 6. Beyond Efficiency: Strengths and Weaknesses of the Principles 7. Case Studies 8. The Cheapest Cost Avoider Principle and the European Transport Policy 9. Conclusions References Index