Environmental Policies Choice as an Issue of Informational Efficiency

The paper deals with the problem of the choice of environmental policy instruments. In the literature the debate over this problem has been conducted following these two opposite views: on one hand the supporters of the idea that the choice of policy instruments coming from a market failure is a public matter and the state, as a policy designer, has to select the optimal instrument and to care about its imposition in the public interest. On the other hand the supporters of market based instruments, trying to fight a battle against a sort of “anti-market” mentality based on a kind of reluctance in applying market-oriented instruments. So in a sense the problem appears as to compare the efficiency of instruments that can be considered “public-oriented” and instruments that can be considered “market oriented”, where the first are characterized by a public agency with a public definition of conduct rule and a public enforcement system; the second kind are instruments based on market mechanism stimulating indirectly the conduct of the firm and characterized by a private administration and a private enforcement system. Given this, we will try to find a definition of a superior and not ideological line, looking at this problem through a law and economics perspective. We will try to move from the theoretical definition of the efficiency of different instruments to their practical, and so direct, potentiality to reach concrete objectives. Particularly three objectives emerge as relevant to judge the practical efficiency of environmental policies: the first is the compensation, in the case of an accident, to the victims; the second is the prevention, in the sense of the incentive for firms to improve safety standards; the third is connected with technological change in the sense to encourage firms to adopt lower risk technologies. Given these three objectives, we are going to analyze the efficiency of environmental policies focusing on the imperfections that can emerge in their practical applications. Particularly in this contribution we will concentrate on informational problems that can characterize the activities of the agencies and private firms in relation with the efficient implementation of the different environmental policy instruments. Precisely, we will consider first of all the choice between liability and regulation, where the latter includes a subdivision between, on one hand, “command-and-control” form of regulation based on the definition of standards while, on the other hand, market-based instruments as indirect form of incentive for private firms. Then we will consider another subdivision: typically “command-and control” regulation can be technology based standards or performance standards. Also market based instruments can be of different kinds: taxes or tradable permits. Finally we will consider the choice in case of the limit of “judgment proofness”, that can arise from the application of a liability system when the resource of the responsible party are lower than the damage amount. In this case we will compare two instruments: the first one is a compensation fund and the second is a financial responsibility system.