Digital Commons Network^™

A basic premise in economics is that companies should pay all of the costs that are incurred in the process of producing their goods and services. The reason? By incurring all of the costs in production, the price charged by the company will reflect those costs. The price consumers pay, then, will also reflect all of the costs incurred in production. This leads to price efficiency, a major goal in free-market economic principles.

Unfortunately we don’t always include the costs to the environment in the production process. Take, for example, electricity generation, which can be accomplished using different inputs. Coal-burning …

Whether you agree with government intervention, or with the specific form of gov- ernment intervention applied, it is a fact that government becomes involved in environ- mental issues because, to date, we have failed to fully inter- nalize the costs of our actions toward the environment in our market systems. So this is why government becomes involved in the first place, to correct existing and recurring market failures. Knowing this important fact helps us better understand, and judge, envi- ronmental laws and policies.

Public planning for sustainability implies a forward-looking approach that often includes imagining future harm and taking steps to prevent that future harm before it occurs. A major challenge to implementing such forward looking, or precautionary, a policy instrument is managing the impacts such policies have on existing expectations. The purpose of this paper is to discuss the role of risk perception in the development of forward-looking policy instruments. A case study example focused on coastal flood insurance in the USA is presented to highlight the difficulty of implementing sustainable policy goals when current policies incentivise the discounting of risk. The …