A. V. Kneese’s Water Quality Management Research (1960s), Within the History of Environmental Economics

Abstract

Allen V. Kneese is called the “father” or “pioneer” of the field of environmental economics but, despite his contributions to that field and the importance of his works, Kneese has not been acknowledged sufficiently in the history of environmental economic thought, and differences between his research and that in the Pigouvian tradition have been obscured over time. This article focuses on his research in the 1960s on water quality management and inquires into differences between his work and that in the Pigouvian tradition. Kneese alternated between theoretical and empirical work and revised the Pigouvian framework pragmatically. The Kneesian framework consists of a two-stage approach, and its substructure is the institutional form of policy agents. To understand the historical meaning of the Kneesian approach, it is useful to compare it to John Krutilla’s “evaluation of non-market value,” Ronald Coase’s “comparative institutional approach,” and Elinor Ostrom’s “Commons.”

Efficiency Without Optimality: Environmental Policies and Pollution Pricing in the Late 1960s

“…Kneese, for example, was a dominant figure among the early advocates of the use of taxes to manage environmental issues. He wrote two highly influential books on water quality management (Kneese 1964, reprinted and extended four years later in Kneese and Bower 1968); relying on the externality concept, he stressed the cost savings that charges 5 could achieve in environmental policies compared with standards and direct controls, and more generally promoted the economic valuation of pollution control (see He is considered the first to have applied this analytical framework to the issue of pollution (Fisher and Peterson 1976;Oates 2000), even if, as will be stressed below, it was not only a pure Pigovian tax (Nishibayashi 2019). also several contributions on air and water pollution at the sixth RFF forum in 1966, published later in Jarrett [1966] 1970; e.g., Gaffney [1966Gaffney [ ] 1970andTurvey [1966] 1970).…”

“…But the separation was porous. For instance, RFF was very influential in both fields: John Krutilla and Otto Eckstein were working on natural resources at the RFF, besides Kneese; Kneese had already worked on water resources projects before beginning to focus on pollution issues, and he was asked by Krutilla to join the RFF (Nishibayashi 2019).…”

“…The idea of mixing standards and taxes had already been suggested by Kneese (1964) and Kneese and Bower (1968), who stressed, mainly relying on empirical studies, that mixing them can provide important cost savings (Nishibayashi 2019). But Baumol and Oates were the first to provide a formal and rigorous proof of the cost-efficiency of such a proposal.…”

“…Their mathematical proof of cost-efficiency relied on the individual production functions of price-taker firms. First, a program of total cost minimization, set for a given 17 Nishibayashi (2019) stresses that Kneese did not necessarily suggest using pure Pigovian taxes but rather effluent charges set in order to reach "ecologically and hydrologically desirable standards" (p. 13)-which was indeed a similar proposal. Next, Ruff (1970) actually argued that the tax "should be chosen on the basis of some estimate of its effects but need not be the optimal one" (p. 81), and concluded that the equalization of marginal costs that these taxes could achieve, which he called the "equimarginal" principle, could bring cost minimization.…”

“…Spencer Banzhaf (2009 provides a rich history of natural resources economics during the 1960s and 1970s but does not focus on pollution control. Shogo Nishibayashi (2019) focuses on Kneese's decisive work on water quality management, but except for this last contribution, there is very little historiography on the economics of pollution issues at that time. 1 This paper studies the reasons for the emergence of these cost-effective solutions, and details their historical and theoretical context; it studies their respective influences, Pigovian for Baumol and Oates versus Coasean for Dales; and it compares the two solutions, focusing on their similarities and showing that they emerged at exactly the same time and for the same reasons.…”