The Political Economy of
Environmental Regulation
Introduction
Two main obstacles that stand in the way of effective government action to control pollutionImperfect informationThe opportunity for political influence
The Process of Environmental Regulation
Step 1: US congress passes billStep 2: EPA drafts regulationsStep 3: State governments implement and
enforce regulations
Major Points of the Legal Process
US Regulatory model: “Judicial”. Regulations can be challenged in court.
Regulatory process can be influenced at dozens of points prior to legal challenge
The E.P.A.
Founded in 1970 as and independent agency within the executive branch
Employs more than 16,000 people in 10 offices and Washington DC
Annual budget of more than $6 billion Required to develop, implement, and
enforce regulations under dozens of different laws
1. Imperfect Information The EPA is provided limited resources;
thus, the agency has to determine priorities The EPA sponsors limited research of its
own, so it must turn to industry, environmental groups, or universities for data about costs and benfits
How good is this information?
Regulation with Imperfect Information
Responses to the Reporting Bias Problem
Improve the in-house analytic capability of the agency
Rely on “incentive-compatible” regulation, see Appendix 12.0
2. Bureaucratic Discretion and Political Influence Bureaucrats will retain substantial
discretion in regulatory decision making because of imperfect information: ambiguous and often contradictory goals
provided by Congressuncertainty in scientific and economic analyses
Because regulatory decisions impose substantial costs on industries, firms will devote resources to influencing this process
Bureaucratic Interests
Bureaucrats are likely to use their positions to satisfy three types of goals:Agency buildingExternal career building
○ Revolving Door. Many people working in environmental agencies often go on to work for firms in the industries they regulate.
Job satisfaction
Revolving Doors at EPA
Job SatisfactionIdeology: Environmental or free-market? Exercise of power and authorityThe desire for “a quiet life”
Who Wins the Influence Game?
VotesEnvironmentalists
DollarsIndustry
The Power of Dollars
Dollars can be used to buy a number of things useful for influencing the regulatory debateTechnical studiesLobbying staffThe promise of future jobsAccess to legislators and regulatorsVotes (through advertising)
Balance of Power Environmentalists sometimes have an
edge in the legislative arena Businesses dominate in the regulatory
sphere Environmentalists, anticipating that laws
will be weakened upon implementation, try to push through Congress very stringent goals
Industry, galvanized by this threat, pours more resources into mitigating the regulatory impact
Zero-Sum Game of Political Influence
In a zero-sum game, the gains of one party can only come at the expense of another
This leads parties to overinvest resources in unproductive competition
A Zero-Sum Lobbying Competition
Corporatist Model of Regulation
Is cooperation, rather than competition, in everyone’s best interest?
A “corporatist” model of regulation (common in Europe)Regulations decided in a bargaining context
between representatives of “corporate” groups--the EPA, private firms, and environmental organizations
Problems With Corporatist Regulation
Reduces general public access to decision makers; often perceived as a restriction of democracy
The US does not have a strong labor or social-democratic party to counterbalance business
Environmental groups or the EPA may not represent the public’s general interest
Reducing Influence in the Political Process
Eliminate the status that lobbying now holds as a tax-deductible business expense
Campaign finance reform could reduce efforts by all sides to gain advantage
Environmental federalism: moving more responsibility for regulation to the state level?
Lessons From Communism
Governments can create environmental disasters that rival, if not exceed, those generated by private economic actors (Many of the worst hazardous waste sites in the US resulted from US military programs)
However, in capitalist countries, government is not the primary source of environmental problems
Lessons from Communism
Needed: an effective government process forcing economic actors to internalize the externalities they impose on others.
A demand for environmental protection can expressed most effectively through democratic pressure on government
Information needed for Successful Environmental Policy
The power of information:The Toxics Release Inventory: requires
companies to publicly report on their releases of 450 chemicals suspected or known to be toxic.
Mere requirement of publication of data has lead to significant reported declines in emissions.
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