A note on the asymmetry between fees and payments

Abstract

In his recent book [ Kneese , 1964], Kneese compares the use of fees and payments to induce the abatement of water discharges to bodies of water. The choice is between a fee that depends on the amount of waste discharged and a payment that depends on the amount by which waste discharges are less than they would otherwise have been. He concludes that in theory the choice between fees and payments is one of equity and not efficiency. He says, ‘Strictly from the point of view of resource allocation, it would make no difference whether an effluent charge was levied on the discharger or a payment was made to him for not discharging wastes.’ [ Kneese , 1964, p. 57.] A similar statement appears on page 92. Kneese goes on to emphasize the administrative difficulties with the payments scheme. These difficulties relate primarily to the determination of what discharges would have been in the absence of the payments scheme and are particularly severe when entry and exit of waste producers are involved.