Law Versus Regulation: A Political Economy Model of Instrument Choice in Environmental Policy

Posted: 24 Jan 2001

See all articles by Marcel Boyer

Marcel Boyer

CIRANO, Université de Monréal

Donatella Porrini

University of Salento - Department of Economics and Mathematics and Statistics

Multiple version iconThere are 2 versions of this paper

Abstract

We analyze the conditions under which a legal intervention can be compared to a regulatory framework in the context of a political economy model of environmental policy. The first part of the paper describes the characteristics of the different instruments we want to compare: first, an assignment of legal liability, focusing on the case of extended lender liability, and second, an incentive regulation framework. We briefly describe the application of those instruments in the United States and in Europe. In the second part a formal political economy model is presented where the possibility of capture of the regulatory agency is modeled in a reduced-form fashion through an overvaluation of the social value of the informational rent of the firms. We show that compared with an extended, strict, joint and several liability system, a regulatory system may perform better or worse from a welfare point of view. Three factors underlying this comparison are discussed in some depth, namely the differential cost between low and high levels of environmental protection activities, the social cost of public funds and the overvaluation factor.

Keywords: environment, asymmetric information, extended liability, CERCLA, regulatory capture, choice of instruments

JEL Classification: D72, D82, K32, L51

Suggested Citation

Boyer, Marcel and Porrini, Donatella, Law Versus Regulation: A Political Economy Model of Instrument Choice in Environmental Policy. Available at SSRN: https://ssrn.com/abstract=257408

Marcel Boyer (Contact Author)

CIRANO, Université de Monréal ( email )

1400-1130 Sharbrooke St. West
Montreal, Quebec H3A 2M8
Canada
514 985-4000 (Phone)
514-985-4039 (Fax)

HOME PAGE: http://www.cirano.qc.ca/~boyerm

Donatella Porrini

University of Salento - Department of Economics and Mathematics and Statistics ( email )

Piazza Tancredi, n7
Lecce, 73100
Italy

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