Input versus emission taxes: Environmental taxes in a mass balance and transaction costs perspective

The standard policy recommendation to limit pollution is to use tares or tr adeable quotas on emissions. A general emphasis on emissions does not, howe ver, take proper account of the characteristics of the material flow throug h the economy. An analysis of the relationships between transaction costs a nd features of this flow shows that it may be less costly to tax inputs int o the economy. The paper focuses on the advantages of a mass flow perspecti ve in environmental economics, the trade-off between the precision of an en vironmental regulation and its implementation costs, and develops criteria for choosing between input and emission-related instruments.