Resource: The Theory of Environmental Policy, Cambridge 1988, Baumol
Objective: This paper explored the difficult issues that arise for the design of environmental policy in an international setting, with a simple interjurisdictional competition model. They ask whether is preferable do delegate the determination of standards for environmental quality to regional or local governments or to rely on a national environmental agency to set uniform standards. Finally the key question within the paper is: Which is the most appropriate approach, centralize or decentralized environmental standards?
The paper structure is organized principally in four main points: the case for LOCAL determination of environmental standards, the case for NATIONAL standards, a simple model of interjurisdictional competition and some concluding observations.
* The case for LOCAL determination of environmental standards: Apparently standards should vary among jurisdictions in accord with local circumstances. Indeed, economically the optimal level of environmental quality is that for which the marginal social damages of waste discharges equal marginal abatement cost. This suggests that the determination of standards should be a local task. But, this “locality” should be a jurisdiction sufficiently large to encompass/take in the benefits and costs associated with the pollutants and its control. On the other hand, there are some pollutants that can travel across jurisdictional bounders, such as acid rain. These pollutants involve inerjurisdictional externalities and obviously cannot be managed properly through solely local decisions.
* The case for NATIONAL standards: the concern in this case is that the local authorities are likely to compete with one another by reducing standards for environmental quality to lower the private costs to prospective business firms. Different localities compete for jobs (wage income) for their fixed labor forces through reductions in their local environmental standards.
* Model of interjurisdictional competition: The model is a partial equilibrium one and local jurisdictions compete for a national mobile stock of capital with the objective of increasing the local level of wages. An inflow of capital raises the capital-labor ratio, thereby increasing the marginal product of labor and the wage rate. The model embodies a straightforward trade-off between local wage income and level of environmental quality.
* Concluding observations: Environmental conditions and local tstes will tend to vary among jurisdictions. The big issues here is whether the decentralized determination of environmental standards can be expected to realize these gains or if instead, forces such as interjuridictional competition for income and jobs will lead to an outcome still worse than that under uniform national standards. Finally the central government can serve as an agent to promote knowledge on new techniques for the abatement and regulation of pollutants. Also, there may exist circumstances under which localities need to “be saved from themselves” because of the detrimental effects of interjurisdictional competition. Therefore, local jurisdiction may manage certain forms of pollution reasonable effectively.
