Strengths and Weaknesses of Conventional Control and Command Regulation - Assignment Example

Environmental Economics Student’s name Institution (I) In order to determine the optimal rate of pollution for the community the model of external diseconomies is very important. According to this model the process of production results in some pollution. The cost of that pollution will be borne by the society at large rather than the producer or consumers paying it (Vos, 2004). As such all persons including the producers, consumers and other persons who do not buy or produce the product will be affected. Price and SMC Social Cost S=PMC P2 P1 Demand Q2 Q1 Quantity The PMC curve is the underlying supply curve which places a monetary value on the cost of crude pollution. Measurement of the costs of pollution may be determined through measuring additional health costs of exposure to the crude pollution and the loss or reduction of working life or productivity (Callan & Thomas, 2010). This may be done through surveys’ in which the residents are asked what they deem to the maximum cot they are willing to pay in order to reduce pollution (Hanley et al, 2006). The SMC curve is the social marginal cost of pollution which takes into consideration the producer costs incurred in production of goods and services and externalities resulting from that process of production. Situations of negative externalities result into an SMC curve above the PMC curve as shown above. If the firms are not regulated they will produce quantity Q1 at the point at which the PMC curve cuts the demand curve. On the other hand at Q1 the marginal cost to the residents as shown by the SMC exceeds the benefits accrued to the society as shown by the demand curve. As such the society would desire to reduce production to quantity Q2in order to have a situation in which the marginal benefit to society is equal to the marginal cost. At Q2 the pollution rate are not zero since the society is still interested in the production of Q2 amounts of goods from the firm in order to ensure the society continues to benefit. As long as the cost of pollution is lower than the benefits accrued the society would be comfortable allowing a certain amount of pollution (Latin, 2005). As such the government would have to come in to ensure that the costs of pollution are below the benefit accrued to the society. This may be done through restricting licenses or through taxes intended to raise the producer marginal cost curve to the social marginal cost curve. (II) While from the public’s perspective it is desirable to have zero pollution, the economic perspective would not allow for zero pollution if optimality is to be maintained. A lot of literature on pollution and in some instances scientific literature has advocated for the elimination of pollution. According to the diagram above, a purely scientific or sociological prescription for pollution would not work economically. According to the diagram in order to have zero pollution, production has to be stopped in order to have zero pollution. Thermodynamics asserts that it is impossible to produce goods which in one way or another do not result in some form of pollution (Roberts & Spence, 2006). On the other hand, it is not as complex as it may seem. Taking the above diagram it is possible to combine the scientific and economic perspectives toward desirable pollution levels. Due to the assimilative capacity of natural environments, waste products (pollutants) will be received, degraded and converted into beneficial or harmless products. Since the firms are producing goods and services which are beneficial to the society, ceasing of production would mean that the society suffers from the non production of goods. Demand for the goods provided by the firms would still remain constant or grow even as the reduction of pollution would call for lesser goods to be produced. At zero price and social cost both the SMC and PMC for pollution would be zero while the demand would still be the same (Cropper & Oates, 2010). The polluting firms cannot produce the goods demanded by the resident without some level of pollution and hence the residents would have to find a level where the marginal cost equals marginal benefit rather than have zero pollution. Zero pollution is therefore impossible without giving up the economic benefits offered by the producer polluter firms. (III) a Price and SMC Social Cost S=PMC P2 P1 Demand Q2 Q1 Quantity SMC Price and social cost S=PMC P2 P1 Demand Q2 Q1 Quantity A change in production processes will result into more crude being produced which will also result into changes in the social marginal costs and producer marginal costs. It is assumed that the adoption of the new process will result in lower costs and hence the PMC curve will move down to reflect this. The production of more crude results in the production of more pollutants and hence the social price and costs will go up resulting in the upward movement of the SMC curve (Biswas, 2007). The efficiency of the new production method will however result into a decrease in price to P1 and in quantity demanded to Q1. However this depends on the efficiency of the process. Price and SMC Social Cost S=PMC P2 P1 Demand Q2 Q1 Quantity Price and S=PMC Social Cost SMC P2 P1 Demand Q2 Q1 Quantity (III) b If water skiing on the lake were to become more popular, the residents of the region where the polluters are located would demand more reduction in pollution from the firms. The price and social cost paid by the society would thus have to go down through reduction in pollution. In order for this to happen the firm would have to deem the benefits of the goods produced to be of lesser value and hence the SMC curve will drop below the PMC curve. The PMC curve being impacted by demand for lesser pollution will see its prices of production rise above SMC. Price of production will thus rise from P1 to P2 and the quantity demanded will reduce from Q1 to Q2 due to changing perceptions of the consumers towards goods produced through pollution processes (Goulder & Parry, 2008). (2) I Strengths and Weaknesses of Conventional Control and command Regulation There are advantages and disadvantages to the use of conventional command and control regulation. The use of conventional means of command and regulation is that implementation of such methods is usually quick. A government needing to control the pollution activities of given firms in a country need only pass regulations requiring those companies to stop pollution activities (Downey, 2005). Such an action can be easily implemented with all stakeholders being informed immediately regulations are put in place and being expected to adhere to them. The use of command and control regulation sets out limits that are to be achieved very clearly and this helps in avoiding confusion. The use of conventional command and control instruments is critical in the setting up of clear guidelines on what is expected by the industry players towards ensuring that they adhere to anti pollution regulations. All industry players know the limits to which they are expected to play in and hence instances of violation can be easily sorted out as the regulations are clear (Atkinson & Tietenberg, 2011). The use of such instruments is also positive for the image of the government. Through command and control regulation the government is deemed to be decisive in acting against environmental concerns. Governments which employ regulations are deemed to hold dear environmental concerns as opposed to incentive based means some which may be deemed weak and indecisive. Means such as taxes and permits may be circumnavigated by rich firms and the government benefit from pollution which makes it look bad. The conventional command and control systems have disadvantages which make them undesirable in some situations. The methods may be deemed complex and heavy handed regulatory mechanisms. The mechanisms call for the cooperation between the regulator and regulator in the provision of information to allow regulation to take place. Due to the close relationship between the government and the firms, it is very possible that the regulator may come to be compromised by the firm such that they begin to work in the interests of the firms s opposed to that of the public (Vos, 2004). The mechanism involves a lot of legalism which may be over intrusive, complex and inflexible. Given the difficulty in the drawing up of rules especially in times of change or instances of political involvement regulations may be deficient since they are drawn to respond to certain scenarios. As such the mechanisms are not so effective in forward looking intervention. The setting of standards in such conventional mechanisms I difficult since it may be hard to determine realistic efficiency or pollution targets which are appropriate. Enforcement is very hard given the extent of complexity and the different scenarios which cannot all possibly be contemplated in the making of regulation thus making enforcement difficult since interpretation may be challenged in court (Callan & Thomas, 2010). Such mechanisms are very ineffective in terms of costs since they are not applied on economic analysis thus result in discouraging of innovation. II Strengths and Weaknesses of Economic Instruments Economic instruments have weaknesses and strengths which have to be taken into consideration when choosing an instrument. Economic instruments usually mean that firms will respond to markets as opposed to bureaucrats. By responding to the markets, the firms bottom-line and profits are what are threatened and hence they will do their best to be better than the competition in order to protect themselves. Economic mechanisms are applicable across different sectors given that application of EFTs or tax incentive will be attractive to firms which operate in all sectors. As such there will be no need to draw and implement a range of complex and specific policies for different sectors and this will make implementation easier for regulators and the firms (Hanley et al, 2006). Economic mechanisms offer a lot of flexibility for the regulator of industrial pollution. Such mechanisms such as emission taxes and ETSs are flexible in that the regulator can change them whenever they feel like the circumstances warrant such a change. As such these mechanisms are very adaptable and may be employed and tweaked in line with the development of different industries and the changing levels of industrial pollution presented. On the other hand these mechanisms also present disadvantages to the regulator and the regulated. Uncertainties and transaction costs are a common issue in the implementation of such economic mechanisms. For instance, the use of such mechanisms make it hard for the industry players to determine what they will be charged since the charges are arbitrary which in some instances results in higher than expected cost (Latin, 2005). Such mechanisms also pose problems in instances of crisis since they are applied in a given manner they are irresponsive or ineffective in terms of crisis since the firms involved have already paid their dues. This means of industry control would require a healthy permit market. Since it I based on licenses and fees, a market that is not very well developed in terms of proficiency in determining appropriate rates of fees to be applied, may find that such mechanisms result in the discouragement of innovation (Roberts & Spence, 2006). One of the most critical of disadvantages of this means is that it may inadvertently create barriers to entry. Given that fees and taxes may at times be prohibitive allowing only large industry players to afford it while the smaller players are locked out. This may result in a situation in which only the large industry players kill competition thus degrading industry. Lastly such mechanisms depend a lot on the reliability of the information provided. Many a time the provision of information may be left to the firms. Given such practices, the firms may decide to offer misleading information in order to pay less taxes and rtes for their pollution contribution. As such this method may prove to be very ineffective in the long run if the regulator does not have mechanisms in place to deal with misreporting (Cropper & Oates, 2010). References Atkinson, S., and T. Tietenberg. (2011). "Market Failure in Incentive Based Regulation: The Case of Emissions Trading," Journal of Environmental Economics and Management, vol. 21, no. 1, pp. 17-31. Biswas, M. (2007). Environmental economics. New Delhi: Mittal Publ. Callan, S., & Thomas, J. M. (2010). Environmental economics & management: Theory, policy, and applications. Mason, OH: South-Western Cengage Learning. Cropper, M., and W. Oates. (2010). "Environmental Economics: A Survey," Journal of Economic Literature, 30, pp. 675-740 Downie, D. (2005) Global environmental policy: governance through regimes. In: Axelrod, R., Downie, D., Vig, N. (Eds.) The Global Environment: Institutions, Law and Policy. 2nd ed. Washington DC: CQ pass. pp. 64-82. Goulder, L., and Parry, I. (2008) Instrument Choice in Environmental Policy. Review of Environmental Economics and Policy. 2: 2. pp. 152-174. Hanley, N., Shogren, J. F., & White, B. (2006). Environmental economics: In theory and practice. New York: Oxford University Press. Latin, H. (2005) Ideal versus Real Regulatory efficiency: implementation of uniform standards and “fine-tuning” regulatory reforms. Stanford Law Review. 37. 1267-1332. Roberts, M., and M. Spence. (2006). "Effluent Charges and Licenses Under Uncertainty," Journal of Public Economics, vol. 5, no. 3/4, pp. 193-208. Vos, J. B., et al. (2004). Integrating Environment and Economics: The Role of Economic Instruments Paris: Organization for Economic Cooperation and Development. Read More