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Abstract:
The concept of pollution prevention, or "P2," signifies a new, proactive environmental mindset that targets the causes, rather than the consequences, of polluting activity. While anecdotal evidence suggests that P2 opportunities exist and that many have been pursued, there is also the perception that the pace of P2 is far too slow. To explore that claim -- and to shed light on barriers to P2 innovation -- this paper presents case studies of industrial P2 projects that were in some way unsuccessful. Economic, financial, and accounting analysis is used to assess the rationale for, and soundness of, these corporate decisions. While based on a very limited sample, the evidence contradicts the view that firms suffer from organizational weaknesses that make them unable to appreciate the financial benefits of P2 investments. Instead, the projects foundered because of significant unresolved technical difficulties, marketing challenges, and regulatory barriers. Based on evidence from the cases, the paper concludes with a discussion of environmental policy reforms likely to promote P2 innovation.

Abstract:
This paper advocates consistently defined units of account to measure the contributions of nature to human welfare. We argue that such units have to date not been defined by environmental accounting advocates and that the term "ecosystem services" is too ad hoc to be of practical use in welfare accounting. We propose a definition, rooted in economic principles, of ecosystem service units. A goal of these units is comparability with the definition of conventional goods and services found in GDP and the other national accounts. We illustrate our definition of ecological units of account with concrete examples. We also argue that these same units of account provide an architecture for environmental performance measurement by governments, conservancies, and environmental markets.

Environmental accounting, ecosystem services, index theory, nonmarket valuation

Abstract:
There is a growing interest in incentive-based policies to motivate conservation by landowners. These policies include full- and partial-interest land purchases, tax-based incentives, and tradable or bankable development rights. Using legal and economic analysis, the paper explores potential pitfalls associated with the use of such policies. Incentive-based policies promise to improve the cost effectiveness of habitat preservation, but only if long-run implementation issues are meaningfully addressed. While we compare conservation policies, particular attention is devoted to the use of conservation easements and in particular a set of easement contracts and transactions in the state of Florida. The easement analysis highlights the importance of conservation policies' interactions with property markets, land management practices, and bureaucratic incentives. Specific challenges include difficulties associated with the long-term enforcement and monitoring of land use restrictions, the lack of market prices as indicators of value for appraisal, and the way in which incentives target specific properties for protection.

Abstract:
There is a growing interest in incentive-based policies to motivate conservation by landowners. These policies include full- and partial-interest land purchases, tax-based incentives, and tradable or bankable development rights. Using legal and economic analysis, the paper explores potential pitfalls associated with the use of such policies. Incentive-based policies promise to improve the cost effectiveness of habitat preservation, but only if long-run implementation issues are meaningfully addressed. While we compare conservation policies, particular attention is devoted to the use of conservation easements and in particular a set of easement contracts and transactions in the state of Florida. The easement analysis highlights the importance of conservation policies' interactions with property markets, land management practices, and bureaucratic incentives. Specific challenges include difficulties associated with the long-term enforcement and monitoring of land use restrictions, the lack of market prices as indicators of value for appraisal, and the way in which incentives target specific properties for protection.

Abstract:
The paper analyzes the EPA's proposed 'total maximum daily load' (TMDL) rules for water quality regulation. The benefits of movement to a system that drives pollutant reductions from ambient water conditions are described. The paper argues that while TMDLs are a highly desirable form of regulation, progress will be tempered by the serious scientific and technical challenges the approach presents. Also, because TMDLs target many polluters who were not previously regulated, the proposed regulations will alter the politics, economics, and law of water quality regulation. Several state TMDL programs are analyzed to illustrate these benefits and challenges. The paper gives particular attention to the role of water quality trading among point and nonpoint sources under a TMDL program.

Abstract:
Financial assurance rules, also known as financial responsibility or bonding requirements, foster cost internalization by requiring potential polluters to demonstrate the financial resources necessary to compensate for environmental damage that may arise in the future. Accordingly, assurance is an important complement to liability rules, restoration obligations, and other regulatory compliance requirements. The paper reviews the need for assurance, given the prevalence of abandoned environmental obligations, and assesses the implementation of assurance rules in the United States. From the standpoint of both legal effectiveness and economic efficiency, assurance rules can be improved. On the whole, however, cost recovery, deterrence, and enforcement are significantly improved by the presence of existing assurance regulations.

financial assurance, bonding, financial responsibility, environmental insurance

Abstract:
Green gross domestic product (green GDP) is meant to account for nature's value on an equal footing with the market economy. Several problems bedevil green GDP, however. One is that nature does not come prepackaged in units like cars, houses, and bread. Even worse, green GDP requires measurement of the benefits arising from public goods provided by nature for which there are no market indicators of value. So what should green GDP count? That is the subject of this paper. Ecological and economic theory are used to describe what should be counted - and what should not - if green GDP is to account for the nonmarket benefits of nature.

Green GDP, environmental accounting, ecosystem services, index theory, nonmarket valuation

Abstract:
Water pollution taxes, or effluent fees, have long been advocated by environmental economists as a regulatory approach to cost effectively achieve water quality improvements. The article reviews the arguments in favor of taxes and traces the history of the idea in U.S. policy debates. Particular attention is given to the institutional challenges presented by a tax system and its application in watershed contexts where transport phenomena are important. The article also addresses the question of why effluent taxes are so rarely seen in practice.

Abstract:
To assess compensation for regulation-induced takings, the authors model political support for regulation as a function of externalities, landowner wealth, and tax burdens. When competing social interests have equal influence on political outcomes, compensation should not be paid. However, when environmentalists and property owners have unequal influence, the model yields several counterintuitive implications. For example, disenfranchised environmentalists should support takings compensation, since it reduces landowner opposition to regulation. The authors also show how compensation rules can limit the deadweight social costs of income transfers, while recognizing their effects on regulator and landowner behavior.

Abstract:
To assess compensation for regulation-induced "takings," we model political support for regulation as a function of externalities, landowner wealth, and tax burdens. When competing social interests have equal influence on political outcomes compensation should not be paid. However, when environmentalists and property owners have unequal influence the model yields several counterintuitive implications. For example, disenfranchised environmentalists should support takings compensation, since it reduces landowner opposition to regulation. We also show how compensation rules can limit the deadweight social costs of income transfers, while recognizing their effects on regulator and landowner behavior.

regulatory takings, compensation, political economy

Abstract:
Increasingly popular tailored regulation (TR) initiatives like EPA's Project XL allow plants to voluntarily substitute site-specific environmental performance standards for command-and-control regulations that dictate pollution abatement strategies. TR can significantly reduce participants' costs of complying with environmental regulations. But in doing so, it can also provide participants with a competitive advantage. We show that this can have undesirable welfare consequences when it enables relatively inefficient firms in oligopolistic markets to "steal" market share from more efficient firms. One critical determinant of whether or not TR has such adverse welfare impacts is the regulator's policy regarding the diffusion of TR agreements among non-participating firms.

Tailored regulation, voluntary regulation, site-specific, performance standards, regulatory reform

Abstract:
No abstract available.

Abstract:
Economic analyses of nature must somehow define the “environmental commodities” to which values are attached. This paper articulates a set of principles to guide the choice and interpretation of nonmarket commodities. We describe how complex natural systems can be decomposed consistent with what can be called “ecological production theory.” Ecological production theory - like conventional production theory - distinguishes between biophysical inputs, process, and outputs. We argue that a systems approach to the decomposition and presentation of natural commodities can inform and possibly improve the validity of nonmarket environmental valuation studies. We raise concerns about the interpretation, usefulness, and accuracy of benefit estimates derived without reference to ecological production theory.

nonmarket valuation, stated preference, revealed preference, commodities, endpoints

Abstract:
This study is an ex-ante and ex-post test of market efficiency for the options on Treasury bond futures contracts traded on the Chicago Board of Trade. All options and future contracts price changes were examined from market inception, in October 1982, through the middle of June 1983 for violations of put-call parity and long box spread arbitrage opportunities. Out of 81,338 option price changes, 891 changes provided ex-post arbitrage opportunities with average ex-ante profits of $54 per trade for put-call parity strategies and $117 per trade for long box spread strategies. Ex-ante profit opportunities were largest in the early months of trading and had almost disappeared by June 1983.

Abstract:
The paper explores the effects of current liability law on real estate transactions involving properties with potential environmental contamination. Sources of uncertainty and their likely impact on transactions are identified. Liability-driven market distortions are likely to be due less to legal uncertainty than to problems arising from asymmetric information and imperfect detection.

Abstract:
This paper explores the deterrent effect of punitive damages. By contrast with the existing literature, we let capital investment -- an important determinant of deterrence -- be made in anticipation of liability. Our analysis challenges several common perceptions regarding the effects of punitive damages law. For instance, it is generally believed that "more punitive" liability increases deterrence, as potential defendants increase safety to reduce risk or to avoid being found punitively liable. We show, however, that more punitive liability can in fact lead to less deterrence. Thus, punitive liability law may be in need of reform, not because it leads to excessive safety or product withdrawals, but because it motivates less safety than other forms of liability. The reason that more punishment can lead to less deterrence is as follows. In anticipation of liability, firms can increase safety to reduce expected damages. But firms can also choose to expose less capital to liability. This is particularly important when punitive damages are a possibility. Not only does the scale of punitive damages increase the incentive to shield wealth from liability, but the law also explicitly allows punitive damages to be conditioned on a defendant's wealth. This incentive to reduce wealth reduces the efficiency of capital investment and weakens the sting of punishment. Thus, deterrence can fall as the scale of damages increases.

Abstract:
The article addresses the question of whether responsibility for pollution created in the past should be retroactively applied to firms, or if the costs of cleaning up existing pollution should be financed by the public. We show that making firms liable for retrospective environmental costs can weaken the incentive to take precautions against future environmental costs. This follows since public financing of these costs can lead to greater prospective risk deterrence by allowing firms to more fully internalize the costs of future environmental risks. However, an analysis of existing public financing approaches highlights a set of dangers associated with their practical use.

Abstract:
This paper examines the effects of extending liability from a producer firm that generates and controls risk to firms who profitably transact with the producer but cannot directly control risk. Examples of extended liability include the liability of retailers for design defects in the products the retailer sells, and the liability of waste shippers for leaks in the landfills that dispose of the shipper's waste. We show that while extending liability forces greater joint cost internalization, it need not improve welfare. The reason is the extended liability can lead to two types of cost- increasing distortions. First, in order to externalize liabilities, the firms to whom liability is extended may reduce capital investment and/or increase output. Second, extended liability can distort the pattern of transactions between risk-generating firms and those with whom they contract, since deep-pocketed firms have an incentive to avoid transactions with more shallow-pocketed firms. To evaluate the ultimate desirability of extending liability, both of these welfare losses must be balanced against the benefit of improved deterrence.