The use of effluent fees to regulate public sector sources of pollution An application of the niskanen model

The economics literature on environmental policy makes a compelling case for the use of effluent fees to control polluting activities. This analysis, however, proceeds from the assumption of profit maximizing behavior by polluters. Since (non-profit-maximizing) public agencies are a major source of environmental damage, this paper investigates the likely response of bureaucrats to effluent fees in terms of some extended versions of the Niskanen model of bureaucratic behavior. We find that, at least for a range of plausible cases, such fees can induce significant reduction in polluting activities. The results are sufficiently encouraging to make the extension of fees to public agencies worthy of serious consideration.