Environment Economics and Human Health: Efficient Pollution Control Requires That Society Make Value Judgments concerning the Dollar Value of Lower Mortality and Morbidity Rates. (Perspectives: Editorial)
Mendelsohn, Robert, Environmental Health Perspectives
Environmental economics has made numerous contributions to both the theory and the applied problems surrounding pollution control. Given that the primary benefits of controlling most pollutants are health benefits, there is a close link between human health and environmental economics.
One of the most important contributions that economics has made to the problem of pollution control is to clarify the objective of social policy. The objective of controlling pollution is to minimize the total costs to society, where these costs include the damages from remaining pollution and the abatement cost required to eliminate pollution. The optimal policy keeps the total cost to society from pollution as small as possible. Additional pollution should be removed as long as the damages removed are less than the cost of additional abatement. Although this is a straightforward application of common sense, this optimal policy is nonetheless controversial, as many environmental advocates would prefer simply to minimize pollution itself. Even within the health community, there are many who would advocate minimizing health effects regardless of cost. However, going beyond the optimal strategy and minimizing health effects would eliminate only a small amount of health loss while costing a great deal of abatement resources. Rather than spending huge resources chasing the last elements of pollution, environmental economics suggests diverting those resources to save more lives in other more promising activities such as reducing driving fatalities or fighting curable diseases.
Another major contribution of environmental economics is proof that government intervention is necessary to control pollution. A few observers, such as Ronald Coase (1), dissented and argued that victims would willingly bribe polluters for clean air. But the profession recognizes that, in general, victims do not and cannot organize themselves to make offers to polluters. There are simply too many people damaged by most emissions of pollution for them to act as a single coordinated agent. With victims having different tastes and incomes, they cannot agree how much to pay and how much to control the pollution. In the absence of government intervention, the market simply does not get organized and so fails to abate.
At first, government intervention meant regulations or standards. The Clean Air Act in 1970 began federal control of the primary air pollutants (sulfur dioxide, particulates, carbon monoxide, ozone, nitrogen dioxide, and lead). The Clean Water Act followed suit and provided federal regulations to protect water resources. Further laws have been passed to regulate hazardous wastes, radioactive wastes, and pesticides. All of these laws established uniform standards, which were easy to understand and easy to enforce, and they made it easy to predict what would happen. The problem with standards is that they did not abate pollution efficiently. The marginal cost of control is high for some firms and low for others. Uniform regulations treat all firms the same. This leads to higher costs. Regardless of the total amount of abatement sought, uniform regulations led to inefficient abatement programs.
One of the most exciting innovations in pollution management in the last decade concerns the adoption of new market mechanisms to encourage efficient abatement. Economists have long advocated using taxes to control pollution. Charging a uniform price per unit of emission has the very desirable property of equating the marginal cost of abatement across firms. Firms evaluate whether paying the tax or abating is cheaper. In the process, they set their marginal costs equal to the tax rate. Because all of the firms face the same tax rate for each pollutant, they equilibrate their marginal costs with each other. This leads to the cheapest possible combination of abatement efforts across firms for any given aggregate target. For every type of pollution, the taxes could reduce the amount of abatement costs for any given targeted level of aggregate pollution. …