The theory in the preceding chapter provides a convincing basis for believing that the traditional command-and-control approach is not and cannot become cost effective. The amount of information required by the regulatory authority if it is to establish a set of cost-effective emission standards is so high as to preclude a cost-effective outcome. In contrast, because the information requirements for initiating a transferable permit system are lower, cost-effective permit systems are, in theory at least, a distinct possibility.
As interesting as these theoretical results are, they provide an incomplete guide to regulatory reform. Because any change in policy has its own set of costs, it is difficult to overcome the inertia of the status quo. New grounds for legal challenge are exposed. Bureaucratic staffs trained in one set of procedures must learn new ones. The comfort of familiarity is lost to both regulators and sources.
In order to overcome this inertia, successful reforms usually involve only a small departure from the traditional approach in order to hold down the costs of change as perceived by the participants. The EPA emissions trading program satisfied this condition because it built upon the traditional approach. Emission reduction credits are a complement to, not a replacement for, the traditional approach.
Successful reforms must also promise benefits substantial enough to outweigh any frictional costs of moving away from a traditional approach. The theoretical models explicated in chapter 2 have made it clear that the benefits to be realized from this reform (in the form of reduced compliance costs) are positive, but these models are incapable