Economics and the Environment

1
Economics and the Environment

• Chapter 12 The Political Economy of
  Environmental Regulation

2
Introduction

• 1970 Clean-Air Act was passed
• Two main obstacles that stand in the way of
  effective government action to control pollution
• Imperfect information
• Government officials have their own motivations
  (ex career building)

3
The Process of Environmental Regulation

• The level of ozone concentration in the air
  officially designated by the government as
  providing an adequate margin of safety is .08
  parts for a million (ppm).
• Where did this come from?
• History of a regulation such as ozone control

4
Ozone Control

• Ozone control is a three-step process
• Step 1. U.S. Congress passes bill
• Step 2. EPA Drafts Regulations
• Step 3. State Governments Implement and Enforce
  Regulations

5
Regulation under imperfect information

• EPA is only provided with so many resources, the
  agency has to determine priorities not all of
  its regulatory functions can be performed
  adequately without spreading personnel too thin.
• The EPA has many other ongoing projects and
  responsibilities, including the regulation of
  water pollution sources and hazardous waste
  dumps, stationary air pollution sources,
  automobiles, and new chemicals and pesticides
  introduced each year

6
More Imperfect Information

• In addition to relying on outdated or poor
  information, the EPA must also contend with a
  reporting bias when it turns to industry for
  information about compliance costs
• Two Responses to reporting bias problem
• Improve the in-house analytic capability of
  agency
• Rely on incentive-compatible regulation

7
Bureaucratic Discretion and Political Influence

• Some of the goals provided by Congress include
  insuring that bureaucrats will retain substantial
  discretion in regulatory decision making
• Environmental regulators are expected by the
  public to pursue their congressionally mandated
  goals efficiency or safety in pollution control

8
Regulators

• Environmental regulators are expected by the
  public to pursue their congressionally mandated
  goals
• Agency building
• External career building
• Job satisfaction

9
Who Wins the Influence Game?

• Depends on who you ask. Two types of resources in
  the political world are votes and dollars.
• Environmentalists has greater voting resources
• Industry has greater monetary resources

10
Political Reform of Regulation

• Efforts at gaining political influence are often
  a form of the positional competition discussed in
  the last chapter
• When lobbying, each side must decide how many
  lobbyists to deploy

11
Lessons from Communism

• Since the fall of the Berlin Wall, a increasingly
  frightening portrait of environmental conditions
  in former Communist regimes has begun to emerge.
  Driven to industrialize at all costs and in spite
  of official laws, officials in the state-owned
  industries proceed to raise the level of poision
  in the land, water, and air to fatal degrees.

12
What Lessons?

• Free-market economics, good government
  involvement in the economy, bad yet, with the
  Soviet model of a centrally planned economy
  discredited, the environmental problems the globe
  faces are now generated primarily by market
  economies and market-driven growth.