Abstract:

As announced in our previous works, this paper is part of a larger research that deals with sustainable development and environmental protection. For a government to make decisions about the supply and financing of public goods according to the criteria recommended by economists requires that it have lots of difficult-to-acquire information, and can involve equity questions as well as efficiency questions. As such, this paper shows that government intervention offers the possibility of realising efficiency gains, by eliminating or mitigating situations of market failure. First we discussed that many environmental resources are not subject to well-defined and clearly established property rights. As we shall demonstrate, efficiency gains may be obtained if government can create and maintain appropriate institutional arrangements for establishing and supporting property rights as the basis for bargaining. However, we shall also see that the scope of this kind of government action to correct market failure is limited to cases where non-rivalry and non-excludability are absent. Many environmental problems do involve non-rivalry and non-excludability.