6.5 Solutions: property rights, regulations, and incentive policies  (Page 2/14)

The Coase theorem is invoked by some scholars and policy analysts to argue that government policy is not needed to correct problems of externalities; all you need is property rights, and private negotiations will take care of the rest. However, Coase himself recognized in his writing that often the real world does not have the frictionless perfect negotiation on which the conclusions of the theorem rest. For example, there are transaction costs in bargaining, and those transaction costs can be prohibitively large when many people are involved, as in the case of air pollution from a factory. Furthermore, perfect bargaining requires perfect information. People often are unaware of the threats posed to their health by air and water pollution, and thus do not know what kind of bargaining would actually be in their own best interests.

Despite these limitations, there is a move afoot to use property right development to effect environmental improvement and improve natural resource stewardship, particularly in developing countries. In parts of Africa, new systems have given villages property rights over wildlife on their lands, yielding stronger incentives to manage wildlife well and demonstrably increasing wildlife populations. In South America, land-tenure reform is promoted as a way to reduce deforestation.

Command and control regulations

Most environmental policy in the United States is much more rigid and controlling than property-rights reform. Our policies for things like clean air and water, toxic waste cleanup, and endangered species protection have largely been composed of rigid rules and regulations. Under such policies, people are given strict and specific rules about things they must or must not do regarding some facet of pollution control or natural resource use, and then a government agency enforces the rules. Here we discuss and explore examples of a few kinds of such " command-and-control " regulations.

Ambient standard

Some policies have targets for the quality of some element of the environment that results from human behavior and natural processes. An ambient standard    establishes a level of environmental quality that must be met. The Clean Air Act directs the U.S. Environmental Protection Agency (EPA) to establish National Ambient Air Quality Standards (NAAQSs) for a range of air pollutants such as ozone and fine particles. The Clean Water Act directs state offices of the EPA to set ambient water quality standards for rivers and streams in their boundaries. In practice, however, such standards are binding only on state regulators. State EPA offices are responsible for developing plans to ensure that air and surface water bodies meet these ambient quality standards, but they cannot do the clean up on their own. They need to use a different set of tools to induce private agents to actually reduce or clean up pollution such that the ambient standards can be met.

Some ambient standards (such as the NAAQSs) have provoked criticism from economists for being uniform across space. Every county in the country has to meet the same air quality goals, even though the efficient levels of air quality might vary from one county to the next with variation in the marginal benefits and marginal costs of cleaning the air. However, uniform ambient standards grant all people in the U.S. the same access to clean air—a goal that has powerful appeal on the grounds of equity.