If I may make a distinction between regulation and law, the speed limit is a law because it is objective versus what is commonly found in the Federal Register. I’m not asking you to take a political or philosophical side, but in your previous post you presented the example of a waterside business which is polluting. If a simple law posted (like a speed limit) prohibits dumping waste in all waterways, the cost of legal actions would be decreased and compliance would be increased. How much so, both ways, is an empirical question.
I think that there are a couple of issues here. One would seem to be whether or not production is separable from the pollution. A factory that locates next to a river to use the water as a resource, but also produces waste water would conceivably be different from a factory that produces some type of chemical waste as a byproduct and given the absence of a cheaper alternative simply dumps this chemical waste in the adjacent river. A law that says you cannot dump waste in any waterway would seem to be much easier to avoid for the latter than the former. One might say, "great, since it is easy not to dump a barrel of waste in the river, we have easily eliminated that problem." It is true that this does impose a cost on the firm (conceivably dumping the waste in the river was simply the cheapest alternative, so dumping it elsewhere raises costs). However, it because wastewater is inseparable from production of the first firm, such a blanket prohibition would affect its production. In fact, if it bans all pollution, the firm would have to shut down. Conceivably, this production is socially valuable. Thus, we have to balance the benefits of the reduction in pollution with the costs of the reduction in production. Ideally, you are trying to get the polluter to internalize the cost of pollution, but this is easier said that done. Thus, how the law is written and enforced might matter here, conditional on what type of waste that we are talking about. And how the law is written might affect monitoring costs.
Another issue here is the question of who enforces the law. If I understand the point that you are making it is that the law itself is distinct from regulation and that the law might have an independent effect on compliance. On that point, I do not disagree. Nonetheless, it seems to me that how the law is enforced (via a regulatory agency or through tort liability) is at least partly going to depend on how simple and clear the law is written as well as the other issues raised in the post.
In your comment on my previous post, I think you also mentioned some general skepticism about regulation. So I should also acknowledge that, for the most part, I skirted those issues in this post. There are a number of reasons to be skeptical of regulation and the effectiveness of enforcement via regulation. I mentioned the narrow scope of expertise in my post, which people who work in these regulatory agencies tell me is a bigger problem than people realize. But there are also issues of regulatory capture as well as standard problems with bureaucracy.
With that being said, however, I still think that there is something interesting about the ability of the law and economics literature to predict the patterns of enforcement, often independent of some of those factors.
Thank you so much for your thoughts. I am limiting any and all laws which prohibit or restrict human action to the domain of tort law.
I wanted to tell you how much I appreciate your work. I am something of an economic junkie. Lately I have discovered the work of Walter Block who challenges the idea of market failure. I believe he is wrong as theoretical matter, but that as a practical matter active regulation falls apart due to the misalignment of incentives.
Great post. Thank you for writing it.
If I may make a distinction between regulation and law, the speed limit is a law because it is objective versus what is commonly found in the Federal Register. I’m not asking you to take a political or philosophical side, but in your previous post you presented the example of a waterside business which is polluting. If a simple law posted (like a speed limit) prohibits dumping waste in all waterways, the cost of legal actions would be decreased and compliance would be increased. How much so, both ways, is an empirical question.
Thank you.
I think that there are a couple of issues here. One would seem to be whether or not production is separable from the pollution. A factory that locates next to a river to use the water as a resource, but also produces waste water would conceivably be different from a factory that produces some type of chemical waste as a byproduct and given the absence of a cheaper alternative simply dumps this chemical waste in the adjacent river. A law that says you cannot dump waste in any waterway would seem to be much easier to avoid for the latter than the former. One might say, "great, since it is easy not to dump a barrel of waste in the river, we have easily eliminated that problem." It is true that this does impose a cost on the firm (conceivably dumping the waste in the river was simply the cheapest alternative, so dumping it elsewhere raises costs). However, it because wastewater is inseparable from production of the first firm, such a blanket prohibition would affect its production. In fact, if it bans all pollution, the firm would have to shut down. Conceivably, this production is socially valuable. Thus, we have to balance the benefits of the reduction in pollution with the costs of the reduction in production. Ideally, you are trying to get the polluter to internalize the cost of pollution, but this is easier said that done. Thus, how the law is written and enforced might matter here, conditional on what type of waste that we are talking about. And how the law is written might affect monitoring costs.
Another issue here is the question of who enforces the law. If I understand the point that you are making it is that the law itself is distinct from regulation and that the law might have an independent effect on compliance. On that point, I do not disagree. Nonetheless, it seems to me that how the law is enforced (via a regulatory agency or through tort liability) is at least partly going to depend on how simple and clear the law is written as well as the other issues raised in the post.
In your comment on my previous post, I think you also mentioned some general skepticism about regulation. So I should also acknowledge that, for the most part, I skirted those issues in this post. There are a number of reasons to be skeptical of regulation and the effectiveness of enforcement via regulation. I mentioned the narrow scope of expertise in my post, which people who work in these regulatory agencies tell me is a bigger problem than people realize. But there are also issues of regulatory capture as well as standard problems with bureaucracy.
With that being said, however, I still think that there is something interesting about the ability of the law and economics literature to predict the patterns of enforcement, often independent of some of those factors.
Thank you so much for your thoughts. I am limiting any and all laws which prohibit or restrict human action to the domain of tort law.
I wanted to tell you how much I appreciate your work. I am something of an economic junkie. Lately I have discovered the work of Walter Block who challenges the idea of market failure. I believe he is wrong as theoretical matter, but that as a practical matter active regulation falls apart due to the misalignment of incentives.
Thank you very much. Greatly appreciated!
"thought of a regulation-induced minimum standard"
ONE 2-letter preposition inexplicably missing here. Makes for tough reading. Hard to maintain a good pace.