A political economy model of implementing pollution laws

A model of the implementation process as applied in pollution control is developed. It differs from previous bureaucracy models in that it subjects the control agency to pressures from both firms and procontrol citizen groups. Each of these three actors maximizes utility over environmental quality and some other variable. Environmental quality may be in the actor's preference function or it may represent derived demand. Working through the agency budget and other policy variables, each actor constrains another actor's attempts to move policy in preferred directions. This results in movement toward a concensus environmental quality, not necessarily the efficient quality. Several institutional changes are analyzed to demonstrate the workings of the model.     

Dynamic aspects of effluent taxation under uncertainty

The optimal adjustment process for an effluent charge is derived when the firm's response to the charge is uncertain. The optimal process is shown to exhibit the dual effects of caution and probing. Because of uncertainty, society should be risk averse or cautious when setting the charge. However, because of the possibility of generating information for improved future control, this caution is balanced by the incentive to probe for additional information. Finally, if the uncertain parameters of the firm's response function are nonautonomous, their change over time must be explicitly considered to avoid bias in estimation.     

Optimal quasi-market choice in the presence of pollution externalities

When the relationship between emissions and ambient pollution is known, it is possible to implement a program to achieve economically efficient pollution levels, even when the control agency knows nothing about the victim's valuation of pollution damages or about emission abatement costs. Unlike a Pigouvian tax, the program provides the correct incentives for entry and exit whether or not marginal damages from a firm's emissions vary over the range of these emissions. Through the provision of “missing” markets, sizable revenues are raised while allocative distortions are corrected.     

Analysis of the current situation of environmental policy of China and establishment of distributed environmental policy framework

In this study, China’s current macro-environmental policies as well as their implementation and management tools are analyzed. By using the basic economic methodology, detailed studies are conducted focusing on the implementation effect of contemporary China’s typical environmental policy of the total pollutant discharge quantity control type, and also the two types of environmental management tools are compared from the perspective of implementation costs and policy uncertainty. By introduction of distributed management tools into the implementation of environmental policies, market-oriented means and the methods of economic analysis are introduced into environmental policy decision-making mechanisms, which could afford a new method for changing the current relatively low efficiency of environmental policy, solving the problem of “government failure” in environmental policy implementation, and providing a new way to make environmental policy system more flexible and more efficient. It is of great practical significance to solve China's current structural, complex and accumulative environmental problems.     

Clustering economic sectors in China on a life cycle basis to achieve environmental sustainability

To improve material efficiency, industrial structure optimization becomes a focal point in Chinese industrial and environmental policies. It is crucial to cluster economic sectors and determine their priority for industrial and environmental policy implementation. Integrating a set of criteria, a hybrid input-output model and the hierarchical cluster analysis, this study clusters China’s economic sectors and determines their priority on a life cycle basis. China’s economic sectors are clustered into three clusters. Industrial structure changes (industrial policy) should encourage the development of sectors in cluster 1 and limit the development of sectors in cluster 2. Technology development and materials recycling (two environmental policies) should mainly focus on sectors in clusters 1 and 2. Future industrial policies in China should limit the development of two sectors named Manufacture of metal products and Extraction of petroleum and natural gas. Instead of limiting some industries by command-and-control, the best policy option is to remedy environmental standards and law enforcement. Enterprises belonging to the identified key sectors from the viewpoint of direct production impacts should be concerned to achieve enterprise sustainability. To achieve sustainable production chains, the identified key sectors from the viewpoint of accumulative production impacts should be concerned. For sustainable consumption, the identified key sectors from the viewpoint of consumption impacts should be concerned to transform consumption styles. Most of environmental pressure can be alleviated not only by technical improvements and material recycling, but also by the development of economic sectors in cluster 1.     

Post-evaluation of a water pollution control plan: methodology and case study

China has developed more than 20 water pollution control plans for river basins (RBWPs) since 1996. However, the implementation has generally lagged. This paper proposes a three-step, post-evaluation methodology to analyze the implementation result of a RBWP and its influential factors. First, a multi-attribute evaluation method based on an index system is established to score the enforcement results of a RBWP. Indicators measure how well a RBWP has achieved its objectives, which include water quality compliance, pollution load control, project construction, financial inputs, and related management requirements. Second, an interpretive structural model is used to detect the significant factors that affect RBWP implementation. This model can effectively analyze the cause-effect chain and hierarchical relationship among variables. Five groups of factors were identified, namely, plan preparation, water resource endowment, policy, institution, and management. Both qualitative and quantitative methods are employed in the third step to evaluate the extent to which these factors have influenced the execution result of a RBWP, including pre-post contrast, scenario analysis, and correlation analysis. This research then post-evaluated the implementation of the Huai River Basin water pollution control plans (H-RBWPs) over a period of 10 years as a case study. Results showed that the implementation of the H-RBWPs was unsatisfactory during 2001–2005, although it improved during 2006–2010. The poor execution of these plans was partially caused by the underestimation of regional economic development in combination with ineffective industrial structure adjustment policies. Therefore, this case study demonstrates the feasibility and flexibility of the proposed post-evaluation methodology.     

Lessons for ecological policy design: A case study of ecosystem management

This paper explores the prospects for combining elements of the ecological and policy sciences to form a substantive and effective science of ecological policy design. This exploration is made through a case study whose specific focus is the management problem posed by competition between man and an insect (the spruce budworm, Choristoneura fumiferana) for utilization of coniferous forests in the Canadian Province of New Brunswick. We used this case study as a practical testing ground in which we examined the relative strengths, weaknesses, and complementarities of various aspects of the policy design process. Where existing approaches proved wanting, we sought to develop alternatives and to test them in turn. In particular, we used a combination of simulation modeling and topological approaches to analyze the space-time dynamics of this ecosystem under a variety of natural and managed conditions. Explicit consideration was given to the development of invalidation tests for establishing the limits of model credibility. An array of economic, social, and environmental indicators was generated by the model, enabling managers and policy makers to evaluate meaningfully the performance of the system under a variety of management proposals. Simplified versions of the models were constructed to accomodate several optimization procedures, including dynamic programming, which produced trial policies for a range of possible objectives. These trial policies were tested in the more complex model versions and heuristically modified in dialogue with New Brunswick's forest managers. We explored the role of utility functions for simplifying and contrasting policy performance measures, paying special attention to questions of time preferences and discounting. Finally, the study was shaped by a commitment to transfer the various models and policy design capabilities from their original academic setting to the desks and minds of the practicing managers and politicians. An array of workshops, model gaming sessions, and nontraditional communication formats was developed and tested in pursuit of this goal.This paper reports some specific management policies developed, and some general lessons for ecological policy design learned in the course of the study.     

Firm behavior under imperfectly enforceable pollution standards and taxes

Assuming expected profit maximization, the behavior of the firm under imperfectly enforceable pollution standards is examined. Among other results, it is found that cost subsidies can reduce the size of violation and amount of wastes, and that the shape of the expected penalty function determines the direction of the firm response to tighter standards. Under imperfectly enforceable pollution taxes, it is found, among other results, that the firm's actual level of wastes is independent of proportional changes in the expected penalty for pollution tax evasion, and that the marginal cost of actual waste reduction equals the unit tax on reported wastes. Some normative aspects of the results are discussed.     

Ambiguity,reasoned determination,and climate-change policy

This paper examines climate-change benefit-cost analysis in the presence of scientific uncertainty in the form of ambiguity. The specific issue addressed is the robustness of benefit-cost analyses of climate-change policy alternatives to relaxation of Savage's original axioms. Two alternatives to subjective expected utility (SEU) are considered: maximin expected utility (MEU) and incomplete expected utility (IEU). Among other results, it is demonstrated that polar opposite recommendations can emerge in an ambiguous decision setting even if all agree on Society's rate of time preference, Society's risk attitudes, the degree of ambiguity faced, and the scientific primitives. We show that, for a simple numerical simulation of our model, an MEU decision maker favors policies which immediately tackle climate change while an IEU decision prefers “business as usual”.“Each agency shall assess the costs and benefits of the intended regulation, and recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its cost.” Executive Order 12866 of the US President.     

Policy options for toxics disposal: Laissez-faire,subsidization, and enforcement

This paper evaluates three second-best policies for dealing with the problem of illegal hazardous-waste disposal. The first is a laissez-faire policy; the second is a policy under which legal disposal of hazardous waste is subsidized; the third is a policy that discourages illegal disposal by increasing the expected penalty associated with illegal disposal. Using a simple computational model, I compute the optimum subsidy and the optimum enforcement budget, and determine the conditions under which each policy option is superior to others.     

Optimal fishery management in the presence of illegal activity

A simple fishery model is developed with legal and illegal markets for fish, the latter market being combated by enforcement efforts put forth by a social regulator. In response to enforcement, violators undertake avoidance activities to escape detection. The possible impacts of illegal activity on optimal fishery management are then explored, and some policy implications are suggested. Concurrently, optimal regulation is calculated when: (a) only legal surplus is maximized versus (b) when both legal and illegal surplus is maximized. The rationale for these two regimes and their divergence in optimal management policies is outlined.     

Achieving environmental goals in a world of trade and hidden action: the role of trade policies and eco-labeling

Importing countries often resort to trade policies and consumer actions in order to reduce negative environmental impacts of the products they consume. Traditionally, these policies were non-discriminatory, i.e., they treated all imports equally, without considering the actual damages caused by the product. More recently, there is a trend towards process-discriminatory policies which attempt to discriminate against environmentally unsound imports while encouraging sound alternatives. We develop a theoretical model of the consuming country's optimal trade policy, allowing for asymmetric information and costly monitoring, and analyze what type of policy is preferable under what conditions.     

Cybernetic formulation of control in ecosystems

Hierarchical control formulations are given for a simple predator-prey model: self-optimization of one subsystem, natural multi-goal optimization, man's multiparameter control of an ecosystem and man's control of a self-optimizing ecosystem. Natural multigoal optimization suggests how several levels of an ecosystem can be optimized simultaneously. The idea of management of a self-optimizing ecosystem takes into account the reactions of the ecosystem to man's activity.     

Determinants of voting on environmental quality: A study of a New Hampshire pulp mill referendum

A local referendum on a proposed pulp mill in eight New Hampshire towns provides a particularly apt sample for examining preferences on environmental issues. Interviews with 359 voters are examined to test various determinants of voting behavior. A utility maximizing model is tested using multiple-regression logit techniques. Significant variables are respondent's location, income, occupation, and education and the initial environment of the community. There is a brief discussion of public policy issues which these results may illuminate.     

Relating environmental modeling to policy issues and decisions

This paper describes a linear program-based computer model which has been developed to identify the most effective spending patterns for environmental cleanup based on public preferences and spending limitations. The inputs to the model include the costs of removing each residual studied from its various sources. The objective function is the total “value of removal”. The factor added for each residual consists of a value for the residual multiplied by the quantity or fraction removed.Results of the analysis relate to and support current and projected policy decisions by the U.S. Environmental Protection Agency (EPA) for air and water programs. In addition, the results of the analysis suggest that EPA undertake a redirection of the Nation's resources among residual control programs.     

Enforcement and price controls in emissions trading

This paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms' abatement costs. The analysis highlights how an enforcement strategy can cause abatement-cost risk to be transmitted to enforcement costs via the price of permits. When this occurs, accommodating the effect of abatement-cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second-best optimal values. However, it is possible to design an enforcement strategy that shields enforcement costs from abatement-cost risk by tying sanctions directly to permit prices. This enforcement strategy stabilizes enforcement effort, the optimal permit supply and price controls are independent of enforcement costs, and the policy produces the second-best optimal outcome.     

Time,affluence and pollution in the theory of consumer's behavior

This paper extends Becker's analysis on the allocation of time to provide a theoretical basis for the phrase “affluence breeds effluence.” Many environmentalists fear that a pollutant tax is merely a license to pollute. Their fears are well-founded if we consider the effect of increased affluence of the society on the pollutant stock. Assuming that relatively pollutant intensive “commodities” are also relatively less time intensive, an assumption applicable to most of the affluent societies, it is shown that the pollutant tax policy will be ineffective if the effect of increased wage rate on pollutant stock is ignored in spite of the efficiency of such a tax as a policy tool.     

Enforcement missions: Targets vs budgets

Enforcement of policy is typically delegated. What sort of mission should the head of an enforcement program be given? When there is more than one firm being regulated the firms’ decision problems—otherwise completely separate—become linked in a way that depends on that mission. Under some sorts of missions firms compete to avoid the attention of the enforcer by competitive reductions in the extent of their non-compliance, in others the interaction encourages competitive expansions. We develop a general model that allows for the ordering of some typical classes of missions. We find that in plausible settings ‘target-driven’ missions (that set a hard target in terms of environmental outcome but flexible budget) achieve the same outcome at lower cost than ‘budget-driven’ ones (that fix the enforcement budget). Inspection of some fixed fraction of firms is never optimal.     

Welfare cost of eutrophication-caused production losses: A case of aquaculture in Lake Kasumigaura

A general model for man's utilization of water resources is presented, in which the linkage between man's production activities and environmental systems is formulated based on Whitcomb's generalized joint production model and Kneese's transfer function. The general model is specified for a particular case of aquaculture in Lake Kasumigaura so as to evaluate in terms of the price data of 1978 the welfare cost of eutrophication-caused production losses under the assumption of horizontal demand curve.