Tuesday, September 6, 2011

Bruce Yandle on environmental economics

David A. Price of the Richmond Fed has an interview with Bruce Yandle.

On the difference between a “systems approach” and a “process approach” to environmental policy issues: 
"A systems approach is where the “brightest and best” get together and look at a problem and come up with
what they believe to be the best solution. They describe the system that can be installed that will lead to a solution of the problem and so it tends to be top-down.  In a process approach, you identify goals and outcomes, develop some rules of the game, and then let the process take hold, holding accountability with respect to outcome. You don’t tell people how to do things; you say this is the outcome that must be achieved, or it’s going to be costly for you."

On problems of transactions costs:
"Transaction costs are large under either approach. The transaction costs are high in a technology-based

systems approach on the input side. The difficulty is no one is keeping score on the output side and we literally
have rivers that come close to dying, even though every discharger is meeting the requirements of the law. So you have a community of legal polluters killing a river. You can say we saved a lot of transaction costs. Well, I would say, “But you didn’t save the river!” Should we be concerned with transaction costs or outcomes? You do have a trade-off there.  I looked at the level of litigation under common law and statute law. We looked at the amount of litigation in the post-1970 world and the pre-1970 world and it looks like you get about the same amount of litigation with the statutes as you do at common law. It’s not an apples-to-apples comparison because all we’re looking at are counts of cases that are brought. Statute law generates a huge amount of litigation, and litigation costs are transaction costs in a way. That’s an important consideration, but I think the more important consideration is outcomes, and then to look, in some way, at the costs."

The start of the "environmental saga":
"From 1970 through last year, we had 2.5 million pages of the Federal Register published during that period; from 1940 to 1970, about 350,000. What I call the environmental saga begins in the United States in about
1970 and that’s when the world changes dramatically."

On  "bootlegger and Baptist" coalitions: 

"That was the story of two groups who favor restrictions on the sale of alcoholic beverages on Sunday. The Baptists take the moral high ground; they would like to see a diminution in the consumption of alcoholic beverages. The bootlegger just wants to get rid of competition one day a week. I called it bootlegger and Baptists  for alliterative purposes. It could  have been called “bootlegger and Methodists” and you would have the same story. ... I was working on the White House staff reviewing newly proposed regulations during the end of the Ford administration and the first part of the Carter administration, in a unit of the Council on Wage and Price Stability. My beat was the EPA. I reviewed the copper smelter standards. I would get their big regulatory bundles and review them, and we would make comments in an attempt to try to reduce the cost of accomplishing the goal. EPA had an excellent economic analysis. The last section said when this regulation becomes final, there will never be another copper smelter built in the United States of America. How would you feel if you had a copper smelter? You’d just been told you will never have any new competition."

For a short and readable recent article by Yandle, see my post of July 1 on "The Accumulation of Regulations."