When is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection

Abstract:     
Contrary to the conventional wisdom among economists and legal scholars, command-and-control (CAC) environmental regulations are not inherently inefficient or invariably less efficient than alternative "economic" instruments (EI). In fact, CAC regimes can be and have been efficient (producing net social benefits), even more efficient in some cases that alternative EI regimes.

Standard economic accounts of CAC are insensitive to the historical, technological, and institutional contexts that can influence (and sometimes determine) the efficiency of alternative regulatory regimes. A regime that is nominally or relatively efficient in one set of circumstances may be nominally or relatively inefficient in another. In some cases, given the marginal costs of pollution control, technological constraints, and existing institutions, CAC can be the most efficient means of achieving a society's environmental protection goals.

This paper reviews the empirical literature on environmental regulation and finds that CAC is not inherently inefficient or invariably less efficient that EI. In addition, the paper elaborates a model through five stylized cases, which demonstrate how alternative approaches to environmental regulation are more or less efficient depending on institutional and technological factors that affect overall regulatory costs. Finally, the model is empirically supported by a detailed history of the U.S. Clean Air Act's regulatory regime. Viewed as an evolutionary process, occurring within an institutional and technological framework, it was (nominally and relatively) efficient for Congress to rely, in the early years of federal air pollution control, on CAC regulations, and then in more recent years to begin experimenting with efficiency-enhancing EI.

JEL Classification: K2, N4, N5, 03, Q2

Accepted Paper Series