Controlling Industrial Pollution: The Economics and Politics of Clean Air

By Robert W. Crandall | Go to book overview

IV
The Environmental Control Problem

Economists, regulators, and environmentalists have long argued about the best method for regulating externalities, although the differences between them have narrowed. 1 Basically there are two options for controlling by-product discharges into the environment: economic incentives or legal compulsion (direct controls). Other indirect approaches are sometimes used. These include forbidding new product introductions, endlessly delaying permits, banning inputs to the production process that generate the discharges, and treating the discharges after they have been produced. Even these approaches are merely indirect quantitative controls.

In the public debate over economic incentives versus direct controls, there is a poor understanding of the basic economics involved. If the objective is to control the discharge to a precise, known level, direct quantitative controls are likely to be most effective in achieving the social goal. If they can be monitored and enforced, direct controls will "work" in the sense that they will reduce pollution to a known level.

It is far from obvious that policymakers should aim for a certain level of pollution. Knowing the "right" level of pollution requires information on costs and benefits that may be uncertain at best. Without this certain knowledge policymakers might choose a strategy that minimizes the social costs resulting from the wrong information on costs or benefits. This is likely to involve economic incentives rather than compulsory standards.


The Objective of Air Pollution Policy

While there are different opinions about the appropriate goal of environmental policy, this chapter presumes that environmental policymakers seek to maximize the economic welfare arising from their

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1
See Jorge A. Calvo y Gonzales, "Markets in Air: Problems and Prospects of Controlled Trading," Harvard Environmental Law Review, vol. 5 ( 1981), pp. 377-430,

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