1. Choosing Environmental Policy: Instruments and Outcomes
Winston Harrington
Richard D. Morgenstern
Thomas Sterner
November 2004

2. What this study is about
Outline
What this study is about
The questions we asked
Our approach
Our results

3. A little history
U.S. 1969: Much environmental concern, little environmental policy
Policy debates
Which level of government?
How stringent?
Which instrument?
Direct regulation vs. economic incentives

4. Why Growing Popularity of EI Instruments?
Increasing awareness of largely theoretical academic literature?
Positive early experiences with economic incentive measures, e.g., lead, SO2 trading?
Disappointment with direct regulation?
Answer: Probably all the above, but not tied to broad-based evaluation of performance. That is goal of this volume.

5. Assertions about environmental instruments
Effectiveness
Static Efficiency
Information requirements
Dynamic Efficiency
Regulatee Burden
Administrative Burden
Hot Spots and Spikes
Monitoring requirements
Tax Interactions
Effects on Altruism
Adaptability
Cost Revelation

6. Different Approaches to the Same Environmental Problems: Six Pairs of Case Studies
European vs. American regulation
Economic incentives (EI) v. Direct regulation (DR)
Focus on actual results

7. Industrial Water Pollution
Case Study Pairs
Utility SO2 Emissions
Utility NOx Emissions
Industrial Water Pollution
Chloroflurocarbons
Lead in Gasoline
Chlorinated Solvents

8. Methodological Limitations
Limited number of cases
Inability to adjust for multiple differences in national situations
Limited quantitative data

9. EI vs Direct Regulation: Favorable to EI
Conventional Wisdom Supported?
Static Efficiency Y
Dynamic Efficiency Y
Cost Revelation Y
Info Requirements N
Admin. Burden N
Adaptability N

10. EI vs Direct Regulation: Favorable to DR
Conventional Wisdom Supported?
Regulatory Burden Y
Hot Spots and Spikes Y
Effectiveness N
Monitoring Requirements N
Altruism N

11. Overall Conclusions
Environmental regulation has ‘worked’– both EI and DR
Reasonably accurate predictions possible, although DR more likely to fall short of expectations
Many subtle differences among hypotheses but two stand out:
Efficiency
Regulatory burden
EI vs DR is unrealistic: mostly a mix of instruments