Toward a First-Bestconservation Policy: Cyclic Demand, Externalities, and Political Failure

Abstract

Normative analyses of the properties of alternative regulations should take account of political as well as economic factors. Economic approaches that neglect how political constraints affect prospects for adoption and implementation will support regulations that tend to fail in practice, because the political equilibrium generated by the new regulations shifts policy from one Pareto-excessive or -deficient level to another. The paper uses an illustration from conservation regulation to illustrate how such politically informed policy recommendations differ from purely economic ones. Some approaches to demand-side management are politically as well as economically better than others, because some policies are more likely to generate an efficiency-supporting political equilibrium than others.

Keywords: conservation regulation, political feasibility, public choice, environmental economics

JEL Classification: D70, D78, Q2