Environmental Law and Public Policy
AbstractThis chapter provides an economic perspective of environmental law and policy with regard to both normative and positive dimensions. It begins with an examination of the central problem in environmental regulation: the tendency of pollution generators in an unconstrained market economy to externalize some of the costs of their production, leading to an inefficiently large amount of pollution. We examine the ends of environmental policy, that is, the setting of goals and targets, beginning with normative issues, notably the Kaldor-Hicks criterion and the related method of assessment known as benefit-cost analysis. We examine this analytical method in detail, including its theoretical foundations and empirical methods of estimation of compliance costs and environmental benefits. We include a review of critiques of benefit-cost analysis, briefly examine alternative approaches to analyzing the goals of environmental policies, and survey the efforts of the Federal governmental to employ these analytical methods. The chapter also examines in detail the means of environmental policy, that is, the choice of specific policy instruments, beginning with an examination of potential criteria for assessing alternative instruments, with particular focus on cost-effectiveness. The theoretical foundations and experiential highlights of individual instruments are reviewed, including conventional, commandand- control mechanisms, economic incentive or market-based instruments, and liability rules. In the economic-incentive category, we consider pollution charges, tradeable permit systems, market friction reductions, and government subsidy reductions. Three cross-cutting issues receive attention: implications of uncertainty for instrument choice; effects of instrument choice on technological change; and distributional considerations. We identify a set of normative lessons in regard to design, implementation, and the identification of new applications, and we examine positive issues, including three phenomena: the historical dominance of command-and-control; the prevalence in new proposals of tradeable permits allocated without charge; and the relatively recent increase in attention given to market-based instruments. Finally, the chapter turns to the question of how environmental responsibility is and should be allocated among the various levels of government. We provide a positive review of the responsibilities of Federal, state, and local levels of government in the environmental realm, plus a normative assessment of this allocation of regulatory responsibility. We focus on three arguments that have been made for Federal environmental regulation: competition among political jurisdictions and the race to the bottom; transboundary environmental problems; and public choice and systematic bias.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-04-30-rev.
Date of creation: 08 Jun 2004
Date of revision:
environmental economics; environmental law; efficiency; cost-effectiveness; benefitcost analysis; environmental federalism;
Find related papers by JEL classification:
- K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-ENV-2006-01-24 (Environmental Economics)
- NEP-LAW-2006-01-24 (Law & Economics)
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