Environmental Policy and Leakage:

The Case of Plastic Bags

Abstract

The market mechanism is one of the key pillars of the modern economy. However, it is by no means a panacea, and the reality is that interventions are made from outside the market to correct externalities in the name of environmental policy. For a variety of reasons, environmental policies do not necessarily impose uniform taxation and regulation on all sources of pollution. This paper first reviews influential theoretical studies on the problem of such leakage in environmental regulation. It then reviews the results of a series of empirical studies that have analyzed the hidden effects present when there is leakage in plastic bag regulations. Finally, it discusses the prospects for future research in Japan.