What Has Kyoto Wrought? The Real Architecture of International Tradable Permit Markets

This paper investigates a central issue in the climate change debate associated with the Kyoto Protocol: the likely performance of international greenhouse gas trading mechanisms. Virtually all design studies and many projections of the costs of meeting the Kyoto targets have assumed that an international trading program can be established that minimizes the costs of meeting overall goals. This conclusion rests on several simplifying assumptions. In this paper, the authors focus on one important issue that has received little, if any, attention: the interaction between an international trading regime and a heterogeneous set of domestic greenhouse policy instruments. This is an important issue because the Protocol explicitly provides for domestic sovereignty regarding instrument choice, and because it is unlikely that most countries will choose tradable permits as their primary domestic vehicle. It is true that costs can be minimized if all countries use domestic tradable permit systems to meet their national targets (allocate permits to private parties) and allow for international trades. But when some countries use non-trading approaches such as greenhouse-gas taxes or fixed quantity standards � which seems likely in the light of previous experience � cost minimization is hardly assured. In these cases, achieving the potential cost savings of international trading will require some form of project-by-project credit program, such as joint implementation. But theory and experience with such credit programs suggest that they are much less likely to facilitate major cost savings, because of large transactions costs, likely government participation, and absence of a well functioning market. Thus, individual nations' choices of domestic policy instruments to meet the Kyoto targets can limit substantially the cost-saving potential of an international trading program. There is an important trade-off between the degree of domestic sovereignty and the degree of cost effectiveness. Moreover, there is a need to analyze the likely cost-savings from feasible, as opposed to idealized, international policy approaches to reducing emissions of greenhouse gases.

U.S. v. Microsoft: Breaking Up Should Be Hard to Do

Mr. Hahn argues that breaking up Microsoft is not warranted on the basis of a careful reading of the facts. He asserts that a breakup is likely to do more harm than good.

How Changes in the Federal Register Can Help Improve Regulatory Accountability

See Hahn for a more recent analysis published in the Administrative Law Review. Congress has recently become more receptive to using economic analysis in regulatory decisionmaking. To improve regulation, an important first step is to provide useful information that is accessible to the public and other interested parties. The government is an essential source of that information for many federal regulations. Within the government, a central repository of information on regulation is the Federal Register. This paper examines how the Federal Register could be used to improve the regulatory process by providing information to interested parties in a "user-friendly' format." Two important conclusions emerge from this analysis. First, Federal Register notices that present regulatory analysis currently exhibit a great deal of variation in the kind of information that is presented. Second, with some key changes in the requirements for including and presenting information, the content of these notices could be improved dramatically. While this analysis focuses on federal regulation in the U.S., the findings and policy recommendations are readily applicable to other jurisdictions dealing with regulatory reform in and outside of the U.S.

The Impact of Economics on Environmental Policy

Environmental economists have seen their ideas translated into the rough-and-tumble policy world for over two decades. They have witnessed the application of economic instruments to several environmental issues, including preserving wetlands, lowering lead levels, and curbing acid rain. This essay examines the impact of the rise of economics in the policy world on the making of environmental policy. I focus on two related, but distinct phenomena-the increasing interest in the use of incentive-based mechanisms, such as tradable permits, to achieve environmental goals; and the increasing interest in the use of analytical tools in regulatory decision making, such as benefit-cost analysis. I argue that economists and economic instruments have had a modest impact on shaping environmental, health and safety regulation, but that economists will play an increasingly important role in the future. Although the role of economics is becoming more prominent, it does not follow that environmental policy will become more efficient. This apparent inconsistency can be explained by the political economy of environmental policy.

The FCC Cross-Ownership Rules Should Be Repealed

The Federal Communications Commission prohibits a business from owning a small newspaper and a small radio station or television station in the same town. I argue that the FCC's cross-ownership rules containing these prohibitions should be repealed because they do not have a useful economic justification.

The Litigating States' Proposed Remedy for Microsoft

State officials face well-funded, well-organized coalitions of in-state businesses arguing for the prosecution of an out-of-state company, an unequal political contest. Accordingly, the state attorneys general (AGs) have resisted settlement attempts and have pushed both the Justice Department and the courts for stronger action against Microsoft. In the process, the interests of consumers, the AGs' nominal clients, have been paid little more than lip service. The nine litigating states and the District of Columbia together account for just 27 percent of the U. S. population. But they do represent many of Microsoft's most vocal rivals. California is home to Apple, Palm, Oracle, Sun Microsystems, and Netscape. Massachusetts is home to the Lotus division of IBM as well as major operations of Sun and Oracle. Utah is home to Novell. By far, the most overreaching provision in the litigating states' proposal is the prohibition on 'binding' middleware code to Microsoft's operating system software. In short, the litigating states would require Microsoft to allow licensees to remove the software code for any function that a Windows licensee could conceivably single out, while still requiring Microsoft to maintain the performance of the operating system. If Microsoft were able to comply technically, which is far from clear, it would have to rewrite Windows from scratch as a combination of thousands of separable, modular components. This would balkanize Windows as a platform for applications software. Developers would no longer be able to count on the presence of key segments of software code. Indeed, to ensure that their software worked properly, developers would have to provide those features themselves. As a result, consumers would encounter different flavors of Windows with differing capabilities. Adding to Microsoft's (and consumers') woes, the litigating states would require Microsoft to license large amounts of its intellectual property to competitors for little or no compensation. Competitors would get Microsoft's software code for free. But consumers would suffer in the long term from decreased innovation since Microsoft would be left with little incentive to develop Windows or many of its applications programs.Technology and Industry

How Changes in the Federal Register Can Help Improve Regulatory Accountability

For working paper version, see Hahn, September 1998.

The False Promise of "Full Disclosure"

In this essay, I address the problem of conflicts of interest in the context of funded research and opinions that are disseminated to the public by academics, think tanks, and individuals affiliated with think tanks. I argue that "full disclosure" may be a laudable goal, but is likely to be a disaster in practice. In addition, I argue that some disclosure norms imposed by the media are not likely to be very helpful in promoting useful information for their audiences, and will likely have unintended adverse consequences. There are no simple solutions to the problem of identifying conflicts of interest and potential biases associated with research and opinions reported in the media. I believe the problem could constructively be addressed by honing the thinking skills of the media and the public, not something that is likely to happen immediately because the demand isn't there.

An Analysis of the Costs and Benefits of Delaying the Release of Windows XP

Various parties are urging Microsoft to delay the release of their new PC operating system, Windows XP. Those calling for a delay cite features in Windows XP that they claim threaten competition in software in ways reminiscent of Microsoft's actions to protect Windows from Netscape Navigator's Internet Browser in the mid-to-late 1990s. However, Hahn argues that circumstances in the case of Windows XP are quite different. While it is not possible to quantify the impacts of delay, the evidence strongly suggests that the costs would be substantial and the benefits to competition would be minimal at best. Indeed, there is good reason to believe that the release of Windows XP will increase consumer choice and provide additional competition in key software - most significantly, in instant messaging. In the end, the evidence leans heavily towards supporting the timely release of Windows XP. The only parties that clearly stand to gain from a delay are Microsoft's rivals.

Government Analysis of the Benefits and Costs of Regulation

Recently, Congress has shown a greater interest in assessing the economic impact of regulation. The interest is driven in part by estimates that federal regulation cost several hundred billion dollars annually. In 1996, Congress required the director of the Office of Management and Budget to provide estimates of the total annual benefits and costs of all federal regulatory programs and estimates of the benefits and costs of individual regulations. This essay reviews the increasing use of economic analysis in regulatory decision making, critically assesses the first OMB report, and considers how the use of economic analysis can help inform regulatory decision making. It argues that policy makers need to address a growing body of evidence that casts doubt on the effectiveness and efficiency of much regulation.Regulatory Reform