I. Introduction – hug a tree or kill a tree?
(1) Theories of Earth in the Balance? – environmental problems contain so many different variables that it is difficult to predict the consequences of economic decisions and problems. There are so many “feedback loops,” where variable affect one another, and interrelated problems.
– (1) Club of Rome: Beyond the Limits (Meadows, Meadows & Randers) – a series of 10 future scenarios that look at different possible variables of inputs such as: food, population, pollution, natural resources, and industrial output. These variables were put into a computer (“world3”) which ultimately concluded that drastic changes need to be made immediately to stave off future catastrophe
+ (a) Scenario 3: Stringent pollution controls would only postpone the catastrophe and worsen it in terms of lives lost.
+ (b) Scenario 10: (catastrophe avoided) by:
^ (i) Zero population growth (2 kids per couple).
^ (ii) Reduced pollution to 1975 levels.
^ (iii) Reduced consumption of natural resources to 1975 levels.
^ (iv) Reduced industrial output $350 per person (artificially induced scarcity – see Lifeboat ethic).
^ (v) Quadruple increase in food yield with erosion control.
+ (c) Criticisms – the beyond the limits report has been criticized for ignoring the benefit of future human technological advances, market forces, new innovations etc.
+ (d) Lesser of Two Evils – trying to decide whether the world is in the balance. Consume or conserve? Mere conservation is not going to stave off the catastrophe, continued consumption might bring disaster, and the Club of Rome report will have us starve the poor people – how do we minimize the consequences of error?
+ (e) Process Politics (Ophulus & Boyan) – Beyond the Limits recommendations would likely never be adopted because the United States practices “process politics.” These process politics are uncapable of dealing with the impending doom and b/c it addresses the process rather than the problems and creates:
^ (i) Muddling through – focusing on one problem at a time instead of thinking about the big picture, which leads to
^ (ii) Genuine Scarcity – scarce resources, which leads to
^ (iii) Politics of Scarcity – a few benefit at the expense of many, which leads to
^ (iv) Revolution.
– (2) Tragedy of the Commons (Garrett Hardin) – rational economic players in a “common” will opt for their personal short term gain in a way that will bring long term tragedy. Outside intervention is necessary to control the “rational” actors. This outside intervention comes in the form of “mutual coercion – mutually agreed upon.”
– (3) Lifeboat Ethic (G. Hardin) – Wealthier nations = lifeboats. Stop immigration to the lifeboats and stop aids to the poorer nations to kill off the poorer populations to save the resources from over-population.
– (4) Classic Natural Resources Conflict:
+ (a) Ecologist cites the environmental imperative: we must sharply curtail growth as the price of biological survival (Beyond the Limits).
+ (b) Economist cites the socio-economic imperative: we must continue growth as the price of social survival (Politics of induced scarcity).
+ (c) Middle ground – Change assumptions about what it means to grow. (Boulding) change focus from increasing throughput to increasing the capital stock of non-renewable resources. Focus on using renewable resources and increasing the
durability of products (“Spaceship Earth”).
(5) Technological solution: we can create more land, etc. But these types of solutions have adverse consequences as well.
(6) Fundamental uncertainty at the heart of environmental problems. So should we 1) be like the ants and conserve extra, or 2) Don’t waste time on conservation you might not need to do anyway.
(7) The consequences of either the Club of Rome method solution, to artificially induce scarcity leads to a backlash or revolution. Letting environmental problems run their course, the Ophuls “process politics” methods leads to catasrophe and the same upheavel. So either way, were screwed.
II. Economics of Pollution Control
(1) Economics and the Environment – the law assigns rights and duties between polluters and receptors. One way of conceptualizing the assignment of rights and duties is through the discipline of economics. Courts implicitly realize that the assignment of these rights and liabilities have economic consequences. Economists assert that politicians are economically challenged.
– (1) Economic Efficiency – resources should be used to maximize total human satisfaction. Resources used to stop pollution are resources not used elsewhere. Thus there has to be an acceptable (economically acceptable) amount of pollution.
– (2) Neo-Classical Economic Theory (Pigou) –
+ (a) Economic Problem – pollution creates problems for the idea that the market is economically efficient because of externalities. Externalities lead to a misallocation of society’s resources.
+ (b) Costs –
^ (i) Private Costs – the cost to a producer to manufacture a good. These costs are taken into account when the producer decides what to produce and at what price to sell the good.
^ (ii) Social Costs – the cost of the materials that are used to produce the goods (raw materials, labor) that cannot be used to produce something else.
^ (iii) External Costs – the costs of pollution are often not paid by the polluter but by some receptor down wind or down stream (i.e., pollution is not a line on their books). Society may pick up these costs through increased healthcare costs etc.
+ (c) Solution – polluters should internalize the costs of pollution through strict liability or taxes. If producers internalized costs then products would be more expensive and consumers would not purchase as many polluting products and producers would try to reduce their polluting costs. This mode assumes that P is always the problem, rather than Coase, looking for optimum level of pollution.
– (3) Coase Theorem (cost-benefit optimality) – the Coase theorem rejects the theory of cost internalization. Coase argues that the proper level of pollution control is the single level of control that the parties would agree on if they were able to bargain in a market with no transaction costs. Legal systems don’t need to make the normative judgment of who is at fault but should try to mimic a well-functioning market.
+ (a) Coase’s Reciprocal Harm Thesis – all problems of pollution are reciprocal with both the polluter and the receptor causing the problem.
+ (b) Coase’s Invariance Thesis – in a perfect (costless) market, the same level of pollution control will result, regardless of the legal rule demarcating the rights of the parties. (Because wherever the line is drawn, people will negotiate to the optimum level.)
^ Perfect (costless) Market –
~ (i) no bargaining costs (transaction costs) – costs of getting the parties together.
~ (ii) no information costs (transaction costs) – costs of each party of getting knowledge about what their cost curves look like.
+ (d) Theory of the Coase Theorem in Practice – (see handout)
^ Legal Rules and Their Consequences –
+ (i) RULE A = Polluter is not liable for pollution.
~ R will be willing to pay (bribe) some amount to the P that is above b but not a + b. R will accept the remaining damages to avoid paying c + d. Amount above b that R will pay depends on the bargaining power and skill of the parties.
+ (ii) RULE B = Polluter must pay damages for pollution.
~ P will pay a vendor of pollution controls to stop or control the pollution until the point where it is cheaper to pay damages (b). P will then pay damages (c) to avoid paying the higher costs of c + d.
+ (iii) RULE C = Receptor entitled to an injunction to stop P from polluting.
~ P will pay a vendor (b) to comply with the injunction. P will then pay R (bribe) some amount greater than c to avoid paying c + d and to get R to waive his injunction right. Amount above c will depend on the bargaining power of the parties.
Iv. Under rule A, no liablity, doesn’t the fact that B pays a little extra, the technology needed plus a little profit, make it more efficient, but not totally so??
WILL PAY A LITTLE EXTRA, BUT THE OPTIMUM POINT STILL ENDS UP THE SAME, IT DOESN’T MAKE THE MARKET INEFFICIENT
+ (e) Criticisms –
^ (i) Invariance Theory Doesn’t Work – Some scholars have argued the assignment of legal rules does affect the outcome because it establishes the relative bargaining power of the parties. The distribution of income that attaches to the assignment of legal rights can affect the outcome b/c it can determine the position of point Z (see handout)
^ (ii) More Problems than Just Transaction Costs – the change in the optimal level of pollution depends not on transaction or market cost but on:
~ (A) initial distribution of wealth, coupled with
~ (B) the distribution effect of legal rules
This does in fact undermine Coase’s invariance theorem – because the choice of legal rules, even in a world without transaction costs, does determine the optimal level of po
ot discuss economics.
+ (a) Courts Reasoning:
^ (i) Defendant not culpable, because what they did was not intentional or negligent
– (A) no foreseeability
– (B) fires are inevitable (opt not to take role of forcing technology)
– (C) invasion was not intentional (see Reynolds)
^ (ii) Plaintiff came to the nuisance
^ (iii) Strong proof of community benefit
+ (b) Dissent’s Distinguishing Arguments (musmanno, who wrote Versailles opinion):
^ (i) this suit is only for damages, and for a small amount
^ (ii) D has not proved the costs of moving the gob
^ (iii) D has not proved that the gob location is necessary.
^ (iv) the town’s health is at issue
+ (c) Possible Economic Argument (Pigou) – the coal in this case is unique b/c of its high pollution content. It should cost more b/c it imposes unique social costs. Forcing the coal company to internalize the costs of this unique externality will not shut down all coal mines in the state, but maybe only this one because of its unique effect.
– Versailles v. McKeepsport Coal – (pg. 82) City vs. Coal company seeking an injunction to keep company from piling “gob” around mouth of mine. Forcing the mine to internalize costs by carting the gob away (or bribing the P to remove the injunction) would cause the mine to shut down which would have adverse economic consequences on the community. The court essentially held that the level of pollution was at the optimal level.
- Waschak v. Moffat – (pg. 90) Homeowners vs. Coal company for damages. Piles of discarded tailings let off gas that has corroded P’s paint on their house. The pollution is unintentional and a natural use for the land, plus P came to the nuisance by purchasing in a mining town near tailings piles.
(3) Triumph of Efficiency? – an analysis of proposed H.R. 9 and S. 343. Economic analysis can become a tool of partisan politics.
– (1) H.R. 9 – tried to force cost-benefit analyses for all environmental, health, and safety rules. No final rule could be passed unless the agency can certify that the benefits would justify the costs. This method would supplement or supersede all other contrary criteria. Compliance must be supported with “substantial evidence.” If a court, on judicial review, finds non-compliance, then the law will be unlawful.
+ (a) costs – all indirect and direct costs (industry will provide data)
+ (b) benefits – only reasonably identifiable significant benefits (difficult to come up with identifiable benefits – interest groups may provide data, which are probably not as well funded).
+ (c) Effect – imposition of information costs on the agency would stall all environmental regulations.
-(2) S. 343 – added that the benefits must outweigh the costs. Industry could petition agencies to review all existing regulations and the rules would be automatically repealed if the agencies did not promptly respond.
-(3) Even if you could show that the benefits outweighed the costs, you could challenge the purported benefits….this would lead to “paralysis by analysis”
(4) Limitations of Economics –
– (1)Pricing Environmental Harms and Amenities – hard to assign a value to environmental benefits and harms. Economics doesn’t like “priceless.”
– (2) Uncertainty – scientific uncertainty about the harms and benefits of environmental pollution.
– (3) High Information Costs – expensive to come up with cost-benefit data especially b/c of the uncertainty.