The The following is the second of two Dan Farber blog entries reposted today from LegalPlanet.
The key to understanding the economics of environmental protection is the concept of externalities. An externality is simply a cost that one person or firm imposes on another. In general, an externality means that an activity is causing more harm than it should.
Of course, a company or individual could decide to voluntarily correct the problem to eliminate the externality. But if the cost is significant, many people will not be altruistic enough to bear a heavy cost in order to help someone else. And corporations, which have a fiduciary duty to protect their own shareholders, are not in the business of being altruistic toward outsider.
If only a few people are on the receiving side of the externality, they might be able to enter a contract with the creator of the externality to take care of the problem. But that’s obviously not going to be practical in complicated situations with multiple victims (and perhaps multiple sources), like urban air pollution. For instance, a negotiation involving all the major polluters and residents of Houston would be a nightmare.
Another solution, favored by some libertarians, is for the recipients to sue. But this is also problematic except in very simple situations. Imagine a lawsuit by all the residents of Houston against all the pollution sources in the city. This would be immensely complicated and expensive litigation, and in the end the decision would fall on a judge or jurors with no expertise in the problem.
So if the problem can’t be settled by the private sector alone or by the courts, the remaining alternatives are legislative or administrative. There are basically only three options:
That’s pretty much the range of options. They all involve government coercion — either to impose the tax or regulation on the externality, or to fund the subsidy by raising taxes. Free markets are great, but they won’t solve externality problems on their own.
Put simply: significant externalities call for significant government intervention.
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Daniel Farber | May 24, 2012
The The following is the second of two Dan Farber blog entries reposted today from LegalPlanet. The key to understanding the economics of environmental protection is the concept of externalities. An externality is simply a cost that one person or firm imposes on another. In general, an externality means that an activity is causing more […]
Robert Verchick | May 21, 2012
The end of the school year always leaves me wishing that I could have lectured more clearly or somehow covered more in my classes on environmental law and policy. There was really just too much to discuss. How does one do justice to all those doubtful arguments in support of the Keystone XL pipeline? It’s […]
Matt Shudtz | May 11, 2012
Two years ago tomorrow, Saturday, EPA sent a seemingly modest idea over to the White House for a quick review. The agency wanted to establish a simple list of “chemicals of concern.” These weren’t chemicals that were necessarily going to be subject to bans or other restrictions, but they present significant enough hazards and are […]
Rena Steinzor | May 10, 2012
President Obama issued the latest salvo in the Administration’s efforts to placate the business community this morning, in the form of a new Executive Order called “Identifying and Reducing Regulatory Burdens.” The Order would expand and enhance the unfunded mandate that would require agencies to scour through the rule books, finding “excessive” rules that would […]
Ben Somberg | May 9, 2012
When the Administration withdrew a rule last month prohibiting young agricultural workers from performing some particularly dangerous tasks, the Department of Labor’s statement didnt’t just say it was tabling the proposal, or reconsidering it, or even starting over from scratch. It went an extra step, adding: “To be clear, this regulation will not be pursued […]
Rena Steinzor | May 8, 2012
Electoral politics or public policy? Policy or politics? One ripe example of how the White House rides herd on health and safety agencies, thinking about politics, not policy to determine what they should do, is provided by the latest poster child for curbing allegedly “excessive rules”: a U.S. Department of Agriculture proposal to take federal […]
Holly Doremus | May 7, 2012
Cross-posted from Legal Planet. You would think that by now federal agencies would have the NEPA process pretty well down. After all, it’s been the law since 1970, requiring that every federal agency prepare an environmental impact statement before committing itself to environmentally harmful actions. And it’s not that hard to do. Agencies just have […]
Chris Wold | May 4, 2012
In the nearly 20 years since the North American Free Trade Agreement (NAFTA) entered into force, the linkages between trade and environmental harm have become clearer than ever. Trade agreements can lead to significant adverse environmental impacts, particularly when countries do not have sufficient environmental laws, policies, and institutions—and trade alone will not increase the […]
Rena Steinzor | May 3, 2012
By CPR President Rena Steinzor and Media Manager Ben Somberg Internal EPA emails obtained by CPR through a FOIA request reveal EPA officials’ frustration regarding the White House’s efforts to triangulate House Republicans’ ferocious attacks on regulations. A White House letter last year emphasizing regulatory costs but barely describing the lives saved and injuries avoided […]