ECON 101: Chap. 12.2 - Command-and-Control Regulation

Command-and-Control Regulation

• uses laws that specify allowable quantities of pollution and that also may detail which pollution-control tech one must use

• Requires that firms increase their costs by installing anti-pollution equipment

• firms are required to account for the social costs of pollution in deciding how much output to produce

Disadvantages of Command-and-Control Rules

1. Regulation offers no incentive to improve quality of the environment beyond the standard set by a particular law

2. requires these amendments standard for all polluters, often the same pollution-control tech as well, often inefficient

3. Subject to compromises in political process, full of fine print, loopholes and exceptions

Pollution Charge

• tax imposed on the quantity of pollution that a firm emits

• Bottom line is that the firm can choose how much pollution to clean based on its own circumstances (tech)

• Some firms result in paying the fine because it’s cheaper than paying the pollution charge

Marketable Permits, Property Rights (cap-and-trade)

• allow a firm to emit a certain amount of pollution per permit

• firms have more permits than the pollute can sell the remaining permits to other firms

• price pf permits is determined by demand and supply in the market for permit

Property Rights

• Legal rights of ownership on which others are not allowed to infringe without paying compensation

• Highly relevant in cases involving endangered species on privately owned land