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Inefficient Local Regulation of Local Externalities

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  • GREGORY BESHAROV
  • ARI ZWEIMAN

Abstract

The consequences of commitment failure have been missing from debates about the decentralized regulation of automobile emissions and other sources of local consumption externalities. Even when the direct external effects of such products are limited to a single jurisdiction, the presence of increasing returns‐to‐scale production causes one jurisdiction's choice of regulatory standard to affect the prices and availability of goods elsewhere. Decentralized regulatory equilibria may be inefficient as a result. Because of a commitment failure, production may be split between standards—and consumers denied the full range of products—when it is efficient to have standards that allow products to be consumed everywhere. Coordination failures may cause similar inefficiencies. The results question the usefulness of the principle of subsidiarity as commonly employed.

Suggested Citation

  • Gregory Besharov & Ari Zweiman, 2005. "Inefficient Local Regulation of Local Externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(3), pages 383-403, August.
    • Handle: RePEc:bla:jpbect:v:7:y:2005:i:3:p:383-403
    DOI: 10.1111/j.1467-9779.2005.00209.x
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    References listed on IDEAS

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    1. Wallace E. Oates & Wallace E. Oates, 2004. "A Reconsideration of Environmental Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 7, pages 125-156, Edward Elgar Publishing.
    2. Besharov, Gregory, 2001. "Influence Costs in the Provision of Local Public Goods," Working Papers 01-02, Duke University, Department of Economics.
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    Cited by:

    1. Lawrence W C Lai & Connie W Y Hung, 2008. "The Inner Logic of the Coase Theorem and a Coasian Planning Research Agenda," Environment and Planning B, , vol. 35(2), pages 207-226, April.

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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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