Park, William M.

English

Research Papers in Economics

Journal of Agricultural and Applied Economics, 28,1(July 1996): 126-129
01996 Southern Agricultural Economics Association
Environmental Regulatory Reform: Discussion
William M. Park
Carriker, Infanger, and Shabman and Stephenson
have provided a set of papers related to the current
debate over environmental regulatory reform. Each
paper stands alone as a distinct and valuable contri-
bution to the literature on this subject. Yet as a set
they complement one another and form a whole
that is greater than the sum of its parts.
Carriker, in his comprehensive overview of fed-
eral environmental policy in the U.S., painstakingly
describes the origins, evolution, and impacts of
nine major pieces of environmental legislation, and
thus sets the stage for discussion of current issues
and professional perspectives in the other two
papers. Carriker’s paper is well documented and
should also serve as a good primer for students tak-
ing natural resource and environmental economics
courses or contemplating graduate research in this
area.
Infanger zeroes in upon three overarching is-
sues that have arisen over the last decade or so, as
implementation of this composite of legislative ini-
tiatives has proceeded and compliance deadlines
have arrived. These issues—unfunded mandates,
risk assessment, and property rights—have been
simmering for some time, but have taken center
stage in discussions of environmental regulatory re-
form since the so-called Republican revolution of
November 1994 gave prime-time publicity to the
Contract With America’s legislative proposals. In-
fanger provides a very thoughtful discussion of the
origin of these issues, the broader context in which
they exist, recent efforts to address the issues and
their likely effectiveness, and what economists
might contribute to the debate surrounding them.
Shabman and Stephenson focus their attention
WilliamPark is a professor of agricultural economics in the
Department of Agricultural Economics and Rural Sociology,
The University of TeDnessee, Knoxville.
upon questions regarding how to establish environ-
mental goals (e.g, a particular level of ambient air
or water quality) and what institutional approach or
mechanism to use to achieve those goals (e.g., com-
mand and control or market-based mechanisms).
They note that while most economists generally fa-
vor market-based mechanisms that provide eco-
nomic incentives for reducing waste discharges,
there are “important and fundamental differences
in professional views” on this matter, as well as the
matter of establishing environmental goals. Shab-
man and Stephenson demonstrate much insight
in their attempt to provide “a taxonomy describ-
ing four economic perspectives on environmental
policy,”
After reading these three papers and contem-
plating how I might respond, I experienced two
sorts of tension. First, I was torn between focusing
upon specific policy reform issues raised in the first
two papers versus focusing upon the more general
subject of professional perspectives raised by Shab-
man and Stephenson. The former thrust appealed to
me because it would appear to be more interesting
and hold more immediate relevance. Too, like most
resource and environmental economists I suppose,
I have rather strong opinions regarding the path that
environmental policy reform could or should take.
However, the latter thrust appealed to my intellec-
tual curiosity and my sense that we as a profession
do not step back and reflect often enough upon the
implicit perspectives we bring to our research,
teaching, and policy advising activities.
Second, I felt somewhat schizophrenic as I was
drawn to perform a bit of self-analysis and peg my-
self somewhere within the Shabman and Stephen-
son taxonomy. While the authors note that an “indi-
vidual economist’s views may not fit neatly into one
of the categories,” some of the characteristics that
differ among the perspectives appear to be philo-
sophically based, particularly those that distinguishPark: Environmental Regulatory Reform: Discussion
the free market environmentalists from the others.
To the extent that this is true, one would not expect
an individual economist to hold a mixed perspec-
tive or to flip-flop back and forth among the alterna-
tive perspectives, However, while I would peg my-
self as more of a market manager than anything
else, I also admit that, depending upon the particu-
lar characteristics of the environmental issue at
hand, I have taken each of the other three perspec-
tives from time to time.
My inclination to interpret Shabman and Ste-
phenson as saying that these perspectives are to a
great extent mutually exclusive may be a function
of the fact that they couched their discussion within
the context of a single environmental issue—point
source pollution—for which market-based mecha-
nisms are broadly supported. As I survey the range
of environmental concerns addressed by the legisla-
tion reviewed by Carriker and the three crossover
issues discussed by Infanger, I find myself drawn
toward one or another perspective perhaps as much
by pragmatism as by philosophical leaning.
As such, I determined to resolve the first tension
and explore my schizophrenic tendencies by at-
tempting to apply or link the taxonomy of perspec-
tives to the three issues raised by Infanger in the
context of the legislation reviewed by Carriker. One
further point seems important to make before tur-
ning to these linkages. Shabman and Stephenson
appear to focus upon the four perspectives as alter-
native normative judgments regarding how envi-
ronmental goals and institutional mechanisms to
achieve them ought to be evaluated or chosen.
However, the taxonomy also seems to have use-
fulness in a more positive vein, in describing what
kinds of things are happening within current reform
efforts and offering some insights as to why, as
some of the discussion to follow will demonstrate.
Unfunded Mandates
The unfunded mandates issue centers on the predic-
ament of local governments, particularly small
cities in rural areas, who face costs associated with
a set of mandates for wastewater treatment, drink-
ing water monitoring, and other environmental pro-
tection measures that exceed reasonable estimates
of their fiscal capacity. This issue has been raised
and debated primarily as a matter of equity, with
the implicit notion that if the mandate were funded
127
by the federal government, everything would be
just fine. However, as the issue has evolved, skepti-
cism about the merits of the standards or require-
ments imposed in these mandates has arisen, on
economic efficiency grounds.
Local governments and state agencies appear to
be arguing that, in light of particular circumstances
in some areas of the country and the opportunity
cost of foregoing spending on other local priorities,
fulfilling these mandates is simply not worth it, at
least within the time frame required by compliance
deadlines. As a result of this reaction at the local
level, some regulatory reform has taken place.
With the blessing of and partial support from
the Environmental Protection Agency (EPA), the
Idaho Division of Environmental Quality under-
took in 1994 a “Cumulative Mandates Pilot Proj-
ect” to assess the fiscal and administrative capacity
of small cities to meet the various environmental
mandates. Another aspect of the project was to de-
velop and test a model procedure by which local
communities could prioritize the projects required
to meet the mandates they face, in part at least on
the basis of a comparative risk assessment. There
was also an understanding from the beginning that
the EPA would be open to consider approval of a
modified compliance schedule that would stretch
out the time frame over which the set of mandates
would be fulfilled.
Based in part on the findings of this pilot proj-
ect, the EPA announced in November 1995 its “Pol-
icy on Flexible State Enforcement Responses to
Small Community Violations,” which formalizes
the EPA’s “support for States’ use of enforcement
flexibility to provide compliance incentives for
small communities.” At least two states, Idaho and
Colorado, have passed legislation to allow approval
at the state level of such extended compliance
agreements.
How, then, would economists with each of the
alternative perspectives react to what has happened
on this issue? The rational analyst might be inclined
to agree that extending the compliance deadlines
for some mandates may well increase the economic
efficiency of local government spending, but would
probably recommend comprehensive analyses of
the standards or requirements associated with each
mandate to determine if they are economically ef-
ficient for small cities. The cost analyst might ac-
cept the standards but would suggest a comprehen-128 Journal of Agricultural and Applied Economics, July 1996
sive analysis of alternative means for small cities to
meet the standards more cost effectively. The mar-
ket manager would probably applaud the process
of revising the environmental goals, in terms of the
compliance deadlines. The market manager might
acknowledge that shifting the locus of collective
decision making toward the local level, using avail-
able information to provide a comparative risk as-
sessment, and recognizing the real opportunity
costs could be expected to produce more economi-
cally efficient goals. The market manager might
also be interested in design of the process for devel-
oping local priorities, with a view to reducing
the administrative transactions costs involved. Free
market environmentalists would, I suppose, argue
that such mandates from the federal government are
unnecessary, if not illegitimate. They would prob-
ably suggest that if local people want cleaner water,
for example, they should bargain with those whose
activities impact water quality or take them to
court, depending upon the existing property rights
specification. They might accept the possibility of
voluntary collective solutions organized through
local government.
Rkk Assessment
One area of environmental policy in which calls for
reform have been made based on comparative risk
assessment is that of municipal solid waste man-
agement. Subtitle D regulations for municipal land-
fills stemming from the Resource Conservation and
Recovery Act were issued on October 9, 1991, con-
taining location restrictions, facility design and op-
erations criteria, groundwater monitoring require-
ments, and other measures which dramatically
increased the cost of landfill disposal, particularly
for rural communities handling a relatively small
amount of municipal solid waste. These regulations
were implemented to protect the environment and
human health, but like many federal regulations,
they appear to be designed for the “worst case sce-
nario” with respect to risk, A complementary ob-
jective, at least implicitly, was to facilitate siting of
new landfills by eliminating the perceived if not
real risks that foster political opposition.
In response to complaints regarding the costs
that local communities would face, the compliance
deadline was extended for six months and states
were allowed to extend it further as long as only air
space above an existing footprint was being used.
However, throughout much of the West, complaints
arose that these regulations were ridiculous for
small landfills serving rural communities in areas
where rainfall averages less that 10 inches per year
and it is 500 feet to the groundwater table. As a re-
sult, the EPA instituted a policy exempting small
landfills (handling less than 20 tons per day) in arid
regions from some of the design and monitoring re-
quirements. This is but one of many examples
where the apparent political constraint that forces
federal environmental policy to be applied uni-
formly throughout the country, and based on the
worst case scenario with regard to risk, leads to an
outcome that most people would readily agree is
(sometimes ridiculously) inefficient.
How would our four economists respond to this
case? The rational analyst would again call for a
comprehensive benefit/cost analysis that might lead
to standards that would differ depending upon geo-
graphic and demographic characteristics. The cost
analyst would question the nationally uniform
technology-based requirements and call for further
analysis of options like the small landfill exemp-
tions that appear to reduce costs without sacrificing
achievement of the environmental standard. The
market manager might focus more attention on re-
solving the siting issue itself without resorting to
regulations that attempt to reduce risks to zero. The
market manager might suggest an auction mecha-
nism for securing volunta~ acceptance by commu-
nities of a landfill in their backyard, or something
like Wisconsin’s Waste Facility Siting Board, which
institutionalizes the process by which landfill de-
velopers and communities arrive at a negotiated
settlement regarding host community benefits. The
free market environmentalist would again eschew
federal standards for this kind of issue, arguing that
clarification of property rights with regard to
groundwater contamination or nuisance impacts is
really all that is needed.
Property Rights
Some of the most contentious debate today sur-
rounds the restrictions on private land use resulting
from designation of critical habitat for endangered
species. On the surface, this appears primarily an
equity issue of who should bear the opportunity
costs associated with protection of endangered spe-Park: Environmental Regulatoq Reform: Discussion 129
ties. While H.R. 9, or something like it, may deal
with the equity issue, the debate has also uncovered
an efficiency issue, based on observations regard-
ing the magnitude of opportunity costs in some
cases and the logic of marginal analysis, not to
mention the prohibitively high administrative trans-
actions costs associated with the procedures re-
quired by the Endangered Species Act. Reauthori-
zation has been held up as progress toward a
compromise that would incorporate some balance
to the process has been slow in coming,
What observations or advice would our four
economists offer here, besides applauding the rec-
ognition of opportunity costs and the search for
some balance at the margin? The rational analyst
would perhaps call for a massive contingent valua-
tion study to estimate what it is worth to people to
protect endangered species, The cost analyst might
argue for studies to explore lower cost protection
strategies than simply putting all suitable habitat
off limits, or to estimate a marginal cost curve for
reducing the probability of extinction by expanding
the area designated as critical habitat. The market
manager might recommend an approach similar to
the Conservation Reserve Program, whereby bids
would be solicited from private landowners to set
aside land as critical habitat. The free market envi-
ronmentalist would probably point to the activity of
the Nature Conservancy in preserving environmen-
tally sensitive land as the only Legitimate approach
to this issue.
A Closing Comment
Reflecting upon the nature of the issues we are
struggling with in this process of environmental
regulatory reform, I am reminded that both In-
fanger and Shabman and Stephenson noted the im-
portance of rent-seeking behavior. Infanger also
discussed the increased attention to conflict resolu-
tion strategies once battle lines are drawn. What
seems to me a critically important role for econo-
mists, regardless of their “perspective,” is the de-
sign of institutional mechanisms that provide suf-
ficient redistribution of benefits and costs, or
reduce the transactions costs of doing so, to make
attainment of reasonably efficient environmental
goals politically acceptable.

ENVIRONMENTAL REGULATORY REFORM: DISCUSSION

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