Abstract

http://ssrn.com/abstract=1934274
 


 



The Rise of Rule Four Institutions: Voluntary Standards, Certification and Labeling Systems


Tracey M. Roberts


University of California, Hastings College of the Law

September 27, 2011

Ecology Law Quarterly, Vol. 40, No. 2, 2013
University of Louisville School of Law Legal Studies Research Paper Series No. 2011-16

Abstract:     
Voluntary standards, certification and labeling mechanisms are one of many forms of private governance institutions that have been developed in recent years to permit communities to govern without government. These institutions enhance efficiency by internalizing externalized social costs and meeting consumer preferences associated with risk. This article advances the existing literature in three ways. First, the article observes that, as a descriptive matter, voluntary standards, certification and labeling systems are “Rule 4” institutions, systems; they permit parties to pursue a Coasian solution to externalities by facilitating the exchange of entitlements. Drawing from Calabresi and Melamed’s seminal article, “Property Rules, Liability Rules and Inalienability Rules: One View of the Cathedral,” the article explains how voluntary standards, certification and labeling systems, by lowering their steep transaction and information costs, permit consumers to trade entitlements. Second, the article observes that these systems are developed primarily in response to government void and government failure, and that this belies the central premise of the Coase theorem - that the main obstacle to internalizing externalities through private sector solutions is the lack of properly defined property rights. These systems permit the exchange of entitlements, not by allocating or defining property rights, but by addressing knowledge problems and collective action problems, suggesting that these are the true impediments to reaching Pareto efficient allocations of resources through Coasian exchanges. Third, the article argues that where governments have adopted voluntary standards certification and labeling systems to counteract their own allocation of entitlements, an overhaul of existing law to change the original allocation may be in order.

Number of Pages in PDF File: 49

Keywords: private governance institutions, regulatory standards setting institutions, non-state market driven systems, eco-labels, Rule 4, Coase, Calabresi, Toxic Substances Control Act, National Organic Program

JEL Classification: K32, K33, L15, L30

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Date posted: September 28, 2011 ; Last revised: October 27, 2013

Suggested Citation

Roberts, Tracey M., The Rise of Rule Four Institutions: Voluntary Standards, Certification and Labeling Systems (September 27, 2011). Ecology Law Quarterly, Vol. 40, No. 2, 2013; University of Louisville School of Law Legal Studies Research Paper Series No. 2011-16. Available at SSRN: http://ssrn.com/abstract=1934274 or http://dx.doi.org/10.2139/ssrn.1934274

Contact Information

Tracey Michelle Roberts (Contact Author)
University of California, Hastings College of the Law ( email )
200 McAllister Street
San Francisco, CA 94102
United States
303-818-8589 (Phone)

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