8. Self-Interest and Environmental Management

Based upon an empirical analysis of environmental cases, we argue that regulations work most effectively when they confer tangible benefits on the regulated. In what could be termed Stiglerian situations, the convergence of self-interest and the public's desire to improve the environment occurs almost naturally. Because those who are regulated lobby for and benefit from regulation and the costs are widely dispersed, these situations tend to be characterized by regulatory stability. In what could be termed Olsonian situations, regulatory benefits are diffused across the many, while regulatory costs are concentrated on the few. In these situations the relatively few clear losers will tend to mobilize against regulation with greater effectiveness than the many weakly motivated beneficiaries, resulting in a high degree of regulatory instability. Compensation can be used in Olsonian situations to create incentives that approximate those that occur naturally in Stiglerian situations.