environmental protection: public or private choice

Environmental Protection:Public or Private Choice

Economy & Environment

VOLUME 4

The titles published in this series are listed at the end of this volume.

Environmental Protection: Public or Private Choice

edited by

D. J. Kraan Head Bureau of Policy Review, Ministry of Finance, The Hague, The Netherlands

and

R. J. in 't Veld Professor of Public Administration at the Universities of Rotterdam and Leiden

Dean of the Netherlands School of Govemment, The Hague, The Netherlands

SPRINGER SCIENCE+BUSINESS MEDIA, B.V.

ISBN 978-94-010-5577-2 ISBN 978-94-011-3560-3 (eBook) DOI 10.1007/978-94-011-3560-3

Printed on acid-free paper

AII Rights Reserved © 1991 Springer Science+Business Media Dordrecht Originally published by Kluwer Academic Publishers in 1991 Softcover reprint of the hardcover 1 st edition 1991

No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner.

TABLE OF CONTENTS

Preface

1. Environmental policy making: an introductionR.I. in 't Veld and D.l. Kraan

A. DECISION-MAKING

vii

2. A spatial theoretic approach to environmental politicsM.l. Hinich 17

3. Green legislative politicsG. Tullock 39

4. Regulation or taxation1.1.M. Theeuwes 51

5. Decision making about the environment; the role of informationF. van Dijk 71

B. CASE-STUDIES

6. Transport policies and the environment: regulation and taxationP. Rietveld and LJ.G. van Wissen 91

7. Road pricing: a logical failureR.I. in 't Veld 111

8. Dutch manure policy: the lack of economic instrumentsFJ. Dietz and K.l.A.M. Termeer 123

9. Dutch manure policy: the role of informationA. Laan 149

C. INSTITUTIONS

10. The role of property rights in environmental protectionD.l. Kraan 167

11. The ecological social contract1.W. de Beus 181

12. Mirror, mirror on the wall, who is the fairest of them allH.l.G.A. van Mierlo and F.K.M. van Nispen 207

About the authors 221Subject index 225Author index 229

PREFACE

This volume is the result of a collective effort made by its authors to reason and write

about environmental policy from an empirical, rather than from a prescriptive

perspective. Since the authors, like most people, care about the environment and, as

professional economists or political scientists, have some expertise to offer in the area

of policy-design, it was not always easy for them to keep on the intended track.

Whereas they knew that it is unusual to follow a strictly empirical approach in such a

'practical' field as environmental policy, they discovered only during the effort what

kind of difficulties would be encountered. Moreover, they learned that it is sometimes

necessary to reason normatively in order to catch essential features of empirical reality.

As it turns out, moral notions cannot entirely be neglected in political life. The

predominance of homo economicus is not absolute.

We feel that the effort has been worthwile and deserves to be repeated and

expanded. It has been a truly co-operative project and we are very grateful to all authors

for their willingness to contribute.

Special gratitude we owe to Frans van Nispen and Annemarie Rima. Frans van

Nispen has assisted us in every conceivable way during the preparation of this book.

Annemarie Rima, director of the Tinbergen Institute, made available the administrative

support for the production of this book. Moreover, thanks to her initiative and

enthusiasm the Tinbergen Institute offered its hospitality to the symposium about

environmental policy on 17 April 1990, where the project was originally conceived.

Finally, we wish to express our sincere appreciation for Carien de Ruiter from theTinbergen Institute who provided secretarial assistance. Without her extraordinaryefficiency and dedication this book could not have been completed according toschedule.

Dirk Jan Kraan

Roeland J. in 't Veld

ENVIRONMENTAL POLICY MAKING: AN INTRODUCTION

Roeland J. IN 'T VELDErasmus University Rotterdam

Dirk Jan KRAANErasmus University Rotterdam

1.1 THE CONTRIBUTION OF POLITICAL SCIENCE

Environmental research is a growth industry for many scientific disciplines. There are

few fields of investigation that are being explored from so many theoretical perspectives.

The relevant disciplines belong mainly to the sphere of the natural sciences. Economics

plays an important role, too. So far, however, the contribution from political science

has been remarkably modest. The question arises why this is so.

Our conjecture is that this situation is due to the particular subject matter of

political science. In the natural sciences and in economics environmental research is

primarily applied research. The effects of investigations in these fields are directed at

the solution of practical problems on the basis of existing knowledge. These problems

typically consist of a target and a number of constraints. The solution consists of an in

strument that will ensure the realization of the target without violating the constraints.

In this paper we shall argue that results from political science cannot be 'applied' in

practical problems in the same straightforward way as can insights from the naturalsciences and from economics. This argument does not imply, however, that politicalscience has nothing to say about the solution of environmental problems. It rather means

that the nexus between theoretical analysis and application of results is somewhat more

complicated than it is in the other sciences mentioned.Furthermore, even apart from the application of results, we feel that political

science has to deal with environmental issues for the simple reason that these issues have

grown into political issues. Since political science is an empirical discipline, it ought to

deal with any issue that has acquired political relevance in a society under investigation.

Obviously, it is more worthwile to study some issues than others, but in many societies

the environment now plays such an important role in the political arena that it is about

time for it to receive the special attention of the discipline.

This volume is an attempt at exploration in this field. It presents an overview

and identifies a number of important themes. We hope that it will convince the reader

Environmental Protection: Public or Private Choice, pp. 1-13

2 In 't Veld, Kroon

of the interest of the field and that it will invoke further discussion and scientific work.In this introductory paper we intend to elaborate two principles that have guided ourwork on this book. These principles are:I. a moderate public choice approach to the policy-making process;2. a strict separation between empirical research and policy design.We have used these principles in the first place for the selection and ordering of thethemes of the individual papers and in the second place for the advancement ofconformity in the analytic approach throughout the book. We are aware that theseprinciples reflect some fundamental aspects of our own theoretical thinking. However,we cannot see this as a disadvantage. We feel, on the contrary, that consistency ofanalytic approach belongs to the essence of a volume of papers and that this featureought to distinguish such a volume from an issue of a learned journal.

In Section 2 we shall identify four positions in the theoretical discussion aboutpublic choice and explain our preference for what we have called the 'moderate publicchoice' position.

In Section 3 we shall discuss the distinction between empirical research andpolicy design and explain how the separate papers in this volume can be characterizedin terms of this distinction.Our introductory paper will conclude with a provisional assessment of the lessons that,in our view, can be learned from the explorations in this volume

1.2 FOUR THEORIES OF PUBLIC CHOICE

The public choice approach in political science distinguishes itself from other approachesby its insistence on methodological individualism. According to this fundamentalassumption, the subject matter of political science consists in the process of collectivedecision making, particularly in public organizations. Collective decisions are consideredas an amalgamation of individual decisions.

However, the acceptance of methodological individualism does not imply thatthe public choice approach can be considered as a uniform methodology. In particular,there is a major dispute within the main approach about the role of normative motivesin political behaviour. In this dispute we distinguish the following four positions:I. radical public choice;2. individual moralism;3. constitutional economics;4. moderate public choice.

Adherents of 'radical public choice' treat all forms of political behaviour asbeing motivated by individual preferences. In this view there is no place for moral

Environmental policy making: an introduction 3

considerations in the explanation of political behaviour. No distinction is made in this

respect between kinds of political behaviour, such as access to a public organization,

participation in its decision making bodies, voicing of proposals, or voting on proposals,nor between kinds of agents, such as citizens, politicians, or bureaucrats. Every agentbehaves as if he were a pure utility maximizer or 'homo economicus'. In fact, theposition of radical public choice implies an entirely economic interpretation of thepolitical process. In the mainstream economic theory of market decision making thereis no place for moral motives, either. However, two caveats apply. Firstly, the conceptof homo economicus is less narrow than is often implied by outside critics. It does notimply that individual preferences are exclusively selfish or, in other words, that netwealth is the only argument in utility functions. Although supporters usually feel thataltruistic motives are not particularly strong in concrete economic or political settings,this feeling is not inherent to the economic interpretation of the political process itself.The utility functions of agents in political models may exhibit interdependence in thesame way as may be the case in economic models. Altruism is included in the model.Secondly, adherents of this position do not deny that some human behaviour ismotivated by moral considerations. They do not even deny that some political behaviour

is motivated in such a way. Their claim is rather that, for the purpose of explanationand prediction, it is useful to assume that people behave as if they were utilitymaximizers, and that this assumption is just as useful with respect to human behaviour

in the political arena as it is to that in the market-place.The opposite of radical public choice is individual moralism. Adherents of this

position hold that political behaviour is predominantly determined by moral motives, incontrast to economic behaviour. In this view political man is fundamentally differentfrom economic man (hence we can speak of 'bifurcated man'; Buchanan, 1962). Inanalogy to the radical public choice position, no distinction is drawn between kinds ofpolitical behaviour or kinds of agents. Individual acts, such as participation or voting,are not explained by preferences but by moral convictions which are vested in suchpolitical ideologies as liberalism, social democracy or conservatism. According to thisposition it is the task of political theory to clarify the choices that people are making interms of their belief systems and to clarify and improve the contents of these beliefsystems themselves. The latter task amounts to the interpretation of the concepts ofcommutative and distributive justice that are characteristic of these belief systems interms of operational norms that can be used to assess concrete public policies. Thisparticular field is known as normative public choice theory (or modern welfare ec0

nomics).l Individual moralism implies that political theory is largely a normative

I For a review see Mueller 1990.

4 In 'r Veld, Kraan

discipline, more akin to ethics than to economics or the natural sciences. On the other

hand there is room for empirical research in this view, but not for the purposes ofhypothesis testing and modelling. Empirical work is rather directed at the descriptionand analysis of prevailing political belief systems. It rather resembles descriptive ethicsthan empirical work in the positive sciences.

The third position to be distinguished is that of constitutional economics. Thisposition is associated with the name of Professor Buchanan, who has proposed anddeveloped it in an impressive scientific oeuvre. Its basic claim is that theoretical analysisshould proceed in different ways for different kinds of political decisions. Thefundamental distinction is that between decisions at the constitutional level ofchoice anddecisions at the post-constitutional level of choice. The first type of decision determinesthe 'legal-institutional-constitutional structure of the polity' (Buchanan, 1987). Thesecond type of decision determines the economic and political process within a givenstructure. In the sphere of post-constitutional decision making the model of 'homoeconomicus' applies, so that only positive analysis makes sense. In the sphere ofconstitutional choice it does not, at least not in a straightforward way because homoeconomicus has preferences for economic goods - either to be obtained in the marketplace or in the political arena - but not for institutional rules. Therefore it may beassumed that at the level of constitutional choice decision makers are susceptible to

normative reasoning. Given the behaviour of homo economicus in post-eonstitutionalsettings, such reasoning can make use of normative public choice theory and identifyconstitutional arrangements that produce outcomes in accordance with some concept ofcommutative or distributive justice. It is commonly understood that it will never bepossible to design constitutions that equal the 'invisible hand' of the market in itscapacity to produce socially desirable results out of privately motivated behaviour, butthat is not say that there is no scope for improvement. Indeed, the system ofrepresentative democracy, as applied in the western world, produces many outcomes thatremind one of the invisible hand (Tullock, 1984) and it is certainly possible to makefurther progress in this direction. In the words of Buchanan: "If the raison d'etre ofsocial science is to advance discussion of potential institutional-eonstitutional reform,we must acknowledge both the dependence of individual choice alternatives on theinstitutional-constitutional constraints and the possible variability of such constraints"(Buchanan, 1989).

The fourth position that can be distinguished is that of 'moderate publicchoice'. It has accepted the concept of homo economicus as described above fromradical public choice. It should be recalled that altruism may appear to be relevant.From constitutional economics it has borrowed the distinction between two levels ofchoice. However, it draws the dividing line somewhat differently than is usual in the


work of Buchanan and his followers. Moreover, it attaches somewhat differentconsequences to the dividing line. We observe two particular deviations in this respect.The first distances moderate public choice from constitutional economics in the directionof radical public choice; the second distances it from constitutional economics in thedirection of individual moralism. This can be explained as follows.

Buchanan uses a very broad concept of 'legal-institutional-constitutional' order.He not only includes in it the membership and decision rules for government - theeconomic constitution in the strict sense - but also legislation concerning property rights,criminal law, regulation of market transactions and the 'monetary constitution'. Thisvery broad view of the constraint structure in which homo economicus is supposed to

act narrows down the room for positive analysis to a considerable extent. As far as thepublic sector of the economy is concerned, it seems to imply that only a part of thedecisions about the allocation and distribution of public means - namely insofar as thesedecisions are not determined by the 'legal-institutional-eonstitutional' constraint structure- remains as an appropriate subject for positive modeling. In view of the actualworkload of public authorities in modern democracies - legislators, cabinets, administrators, bureaucrats - this means that positive analysis is restricted to a rather small component of the actual political process. Moderate public choice is closer to radical publicchoice in that it appreciates the relevance of positive economic analysis for a broaderarea of decision making than constitutional economics tends to do. In this respect wecan firstly think of certain types of institutional rules that do not belong to the economicconstitution in the strict sense: regulation of market transactions, for instance. Secondly,we can think of constitutional rules in the strict sense: rules about the voting proceduresof legislative bodies, for instance. Although it may be argued that these types of rulesdo not occur as arguments in utility functions, individual preferences for them cannearly always be derived from the preferences for the allocative and distributive resultsthat they tend to induce. In this respect these rules do not differ from Pigovian taxes orsubsidies,2 which constitutional economists typically posit at the post-eonstitutionallevelof choice. Furthermore, there is no a priori ground for exclusivity of either mode ofanalysis in any domain of choice. In case of doubt, both modes can be allowed to

compete.3

2 Regulations as well as Pigovian taxes and subsidies affect allocation and distribution indirectly,namely through their effect on the prices or quantities of private market transactions, as the case may be.Only decisions about purely public demand and supply affect allocation and distribution directly.

3 Positive analysis of constitutional choice can even be interesting if it is felt that in reality normativeconsiderations are decisive. Most contract theories of constitutional choice - including the Rawlsianpseudo-contract theory - require that constitutional provisions must be amenable to approval by homo economicus (or amenable to hypothetical approval by homo economicus from behind 'a veil of ignorance').

6 In '1 Veld, Kroon

On the other hand, the position of moderate public choice is closer to that of

individual moralism in that it accepts some room for normative reasoning at the post

constitutional level of choice. Whereas "the constitutional economist has nothing to offerby way of policy advice to political agents who act within defined rules" (Buchanan,1987), the moderate public choice analyst accepts that in some areas of post-

constitutional choice, moral motives can be decisive for the behaviour of citizens,

politicians and bureaucrats. In his view this would even be true if the sphere of post

constitutional choice were to be conceived in Buchanan's way and, accordingly, it was

restricted to a rather small domain of public decision making.Having characterized the four methodological decisions within the public choice

approach in this way, we should immediately add that our categorization is rough and

that many questions may be raised about the dividing lines and the interpretation ofparticular scientific efforts in relation to these dividing lines. In the context of thisintroduction we cannot treat these questions in detail but, in view of our adoption of the

moderate public choice position, it seems appropriate that we become a little more

specific about the demarcation of the kinds of decisions that we consider as sensible

subjects for positive and/or normative analysis. Even this question we will not answer

exhaustively. We will state the principle however. The principle is that positive analysis

always makes sense, because nearly every public decision can be examined from the

perspective of its ultimate consequences for individual welfare and because it is

important to understand the world of homo economicus, even if it is not exactly theworld we live in. In contrast, normative analysis only makes sense in areas of choicewhere decision makers are actually susceptible to moral arguments. In relation to the

contents of this volume, it is important to note that we consider income distribution tobe at least partially an issue that is strongly affected by beliefs of a moral nature. In thecontext of environmental policy this issue is of course particularly relevant because ofits relation to the principle 'the polluter pays'.

Furthermore, we consider legislation about property rights as an area ofdecision making that is dominated to a large degree by moral considerations, althoughit does not belong to the economic constitution in the strict sense. On the other hand wewill treat regulation as an ordinary policy instrument that is comparable to subsidies and

taxation, not only in its effects on allocation and distribution, but also in its status as apost-constitutional decision that can sensibly be subjected to positive analysis.

A last remark about our adoption of the moderate public choice position is the

following. Some people may feel that this position does not differ fundamentally from

that of constitutional economics and that the papers in this volume fit well into the

research program that has evolved from the latter position. We do not want to quarrel

about words but we emphasize that there is a connection between views on the


sensibility of normative and positive analysis with respect to certain areas of public

policy and views on the relevance of empirical work. According to Buchanan the

ultimate purpose of positive modeling in economic and political science is not predictionor explanation, but reasoning about optimallegal-institutional-eonstitutional structures.Even if concrete models for particular settings of economic and political choice were to

lack predictive and explanatory power, such models would still be appropriate becausethey indicate what could happen if, under given institutional rules, less morallymotivated individuals were to enter the market or the political arena than is actually the

case.4 Our difficulty with this approach is not that we doubt the usefulness of insightsabout the world of homo economicus for institutional reform, but rather that it easilyleads to an underestimation of careful empirical work. Although empirical insight cannot be considered as the sole purpose of positive analysis, it must certainly beconsidered as the primary one, if it were only to know how close to reality the realmof homo economicus actually is.

1.3 EMPIRICAL RESEARCH AND POLICY DESIGN

The world in which environmental policy makers, legislators and bureaucrats findthemselves appears to be dominated by uncertainty in many respects, and by complexinterdependencies. The threatening prospects of irreversible damage to the futurepossibilities of existence for mankind are sometimes more or less hidden in fog banks

of uncertainty as to the real causalities. Scientific dispute and its results are observedthrough the veils of political and economic interests, and maybe even manipulated, asHinich seems to suggest in this volume. Moreover many of the effects of irreversibledevelopments disappear behind the restricted time horizons of the agents concerned.

There is an interesting analogy between radical public choice and individualmoralism in that both positions within the public choice approach are incompatible withthe view that results from political science can be 'applied' in order to solve practicalproblems, for instance in the area of environmental policy. Radical public choiceexcludes such possibility because it denies that many human beings in political roles- as citizen, politician, bureaucrat, etc. - would be interested in the solution of practicalpolicy problems. Only a 'benevolent despot' would have such an interest, but such acreature would only exist in mythology and in welfare economics. Individual moralismexcludes such a possibility, too, because it denies that political theory is predictive

empirical theory, so that there is nothing to apply to begin with. Of course, the latterview does not imply that political theory would have nothing to say about environmental

4 See, for instance Buchanan, 1983, 1989.

8 In '1 Veld, Kroon

problems. It certainly would, but then by way of moral pursuasion, rather than by thatof social engineering.

Constitutional economics and moderate public choice, on the other hand,envisage a well defined role for the political scientist as an expert on certain types ofpractical problems. These problems can be characterized as problems of institutionaldesign, as opposed to policy design within given institutional rules. In order to fulfillthis role, the analyst must focus his attention not only on the working of institutions ingeneral, but also on their effects in particular policy areas. Furthermore, according to

the moderate public position adopted in this volume, institutions must be studied notonly from the perspective of how they affect the behavior of homo economicus in atheoretical model, but also from that of their impact on factual behavior in the realworld. For the latter purpose the model of economic man has to be operationalized,utility functions have to be made explicit and empirical hypotheses have to be derived.Most of the papers in this volume examine the institutional setting of environmentalpolicy from an empirical perspective. These papers are arranged in parts A and B. PartA contains two papers on the main stages of the policy making process and two paperson 'vertical' themes that are relevant at every stage.

Hinich has made a first attempt to integrate concrete environmental issues inthe spatial theory of ideology, that has evolved from the work of Downs. He builds onthe major revision of this theory that he has initiated in earlier work. In its present formthe spatial theory of ideology provides a firm basis for empirical work in the area ofelectoral competition. In view of the rapidly increasing electoral importance ofenvironmental issues this paper can be considered as an essential building block forfurther work in this area.

Tullock addresses the legislative process on environmental policy. Making useof existing insights about the working of majority rule in situations of narrowly concentrated costs and widely dispersed benefits, he argues that efficient environmental policieswill only emerge when the costs fallon the same people as are receiving the benefits.A policy instrument like tradable permits, which is based on a new kind of propertyrights, performs better in this respect than the traditional instruments of Pigoviantaxation and regulation.

Theeuwes treats the important theme of the choice between regulation andtaxation. He observes that the well-known contrast between the welfare theoreticalargument in favour of taxation and the practical predominance of regulation, issomewhat outdated and that in this light the explanation of this contrast by the rentseeking activities of producers (Buchanan/Tullock, 1975) has to be reviewed as well.He summarizes the Weitzman criteria for the choice between taxation and tradablepermits, as well as results on convexity conditions for optimal taxation, and concludes

Environmelllal policy making: an illlroduction 9

that the traditional welfare theoretical argument in favour of taxation has to be qualified

in various respects. However, this conclusion does not imply that practical policy

making is directed by welfare theoretical prescriptions. Although Theeuwes sees a role

for normative principles in practical policy making, these principles are typically not

those of welfare theory. In his view practical normative principles and rent seeking by

the business community generally work in the same direction: that of direct regulation.

Finally, Theeuwes suggests a new public choice explanation for the output of 'environ

mental quality' as a public good.Part A is concluded by a paper by van Dijk on the role of uncertainty in the

decision making process. He treats this theme in the institutional setting ofrepresentative democracy. It appears that uncertainty has a far-reaching influence in

every stage of the process. Risk aversion on the part of politicians and bureaucrats willtypically lead to a cyclical pattern of decision making in which problems are only

addressed when electoral considerations make it worthwile to do so.

Part B consists of four case studies. The cases selected are: the policies of the

Dutch national government concerning (1) the traffic problem, and (2) the manure

problem. Policy making in each of these areas is examined from the same thematic

perspectives that were used in Part A, namely the choice between regulation and

taxation and the role of uncertainty. The first theme is treated by Rietveld and VanWissen for the traffic problem and by Dietz and Termeer for the manure problem. The

latter paper places this theme in the context of the choice between regulation and

financial incentives ('economic instruments') in general. The second theme is treated byIn 't Veld in the context of a specific attempt at policy making concerning the traffic

problem: the case of road pricing. Laan describes and analyzes the role of informationin Dutch government policy concerning the manure problem. Each of the papers in thispart describes a decision making process about a concrete policy of the Dutch nationalgovernmental and interprets the results in terms of the objectives of the decision makersand the characteristics of the institutional setting.

Whereas the approach of Parts A and B is exclusively positive and empirical,Part C addresses some questions of institutional policy design. Kraan looks at theopportunities for property rights legislation in environmental policy. He argues that suchlegislation can be considered as an institutional constraint for the allocative process

which is commonly considered as a matter of moral principle. This characteristic offersopportunities for reform that furthers allocative efficiency in areas where regulation,taxation and subsidies are failing.

De Deus explores the institution of contractarianism or unanimity rule in

relation to the environmental problem. He distinguishes two types of contraetarianism

at the constitutional level of choice and four types at the post-eonstitutional level of

10 In 't Veld, Kroon

choice, 'administrative contractarianism' or the policy ofcovenants with polluters beingone of these. De Beus argues that in principle environmental protection is a positive sumgame so that Pareto-superior policies and unanimous decisions must be feasible. It mayalso be true that environmental policy will be more efficient and may be implementedearlier if it is based on unanimous support. The problem, however, is that contractarianism generally requires redistributive measures that are felt to be unjust, namely in theopposite direction than would be required by the 'polluter pays' principle. His gloomyconclusion is that "at this moment contractarian methods in Dutch environmental policy(...) are symbolic, ineffective, controversial or simply absent, in spite of theirpresumptive efficiency".

The volume is concluded by a more hopeful note by van Nispen and vanMierlo. After reviewing Wolfs typology of government failures, these authors observethat environmental policy is characterised by concentrated costs and dispersed benefits.This leads to undersupply and the 'failure of unjust distribution' because people feel thatpulluters ought to bear the costs of policy. Given this interpretation of the politicalsetting, the authors revive Olson's theory of pressure groups. They employ the idea of'entrepreneurial politics' that has evolved from Olson's work, in order to argue that theprospects for efficient policies under majority rule are not so grim as some peoplebelieve they are.

1.4 LEARNING

The insights collected in this volume might enable the different categories of actors inthe field of environmental policy to realize, better than before, which interdependenciesare to be taken into account when considering some type of action. We will concludeour introduction by an attempt to deal with some of these interdependencies in asystematic manner. Therefore we design a three-dimensional space, within which weconsider relationships. The three dimensions are:

the different phases of the policy cycle: agenda building, preparations for decisions,decision making, implementation and evaluation;the different categories of actors: citizens, politicians, bureaucrats and polluters;the different archetypes of policies: institutional change, regulation, taxation,pricing tradeable permits, etc.

The paradigm of methodological individualism that characterizes the moderate publicchoice approach enables us to consider these relationships in terms of regulatingbehavioural motives and options. We are not in the position here to give a completepicture; we only formulate a number of insights to be gained from the contibutions in


this volume and therefore restrict ourselves to some of the 'positions' in the three

dimensional space we have created.

a. Agenda building, politicians and institutions.

Some authors point out that environmental problems appear on the political agendarelatively late after their emergence. Laan points out that lack of information clearly wasone of the main causes in the case of Dutch manure policy, but Van Dijk adds, as anexplanation, that environmental issues were not rewarding to politicians as long as onlya small number of voters were strongly interested in environmental issues. Both Tullockand Van MierlolVan Nispen deal with the special problems caused by the widelydispersed benefits and narrowly concentrated cost of potential solutions to certainenvironmental problems. Even during the agenda building phase such cost-benefitstructures will be reflected 'backwards'. No politician will- under these circumstances-be able to gain additional votes by taking up a certain issue, but he most certainly will

lose some (possibly very influential ones). It is nearly superfluous to add that a benefitstructure of a potential solution wherein benefits would be concentrated in the distantfuture, while costs would be close in time, would not contribute to a priority positionof that issue on the political agenda. If hesitance and neglect during the agenda buildingprocess can be explained in this manner, the same type of reasoning can be used to

clarify why the relative position of environmental issues on the same agenda may risevery rapidly shortly afterwards: as Hinich points out, voters in general will hold aconservative attitude towards a vested ideological position as a consequence of theintellectual and emotional investment in that position. So voters will have to pass athreshold in order to move to another ideological position. But once the passage hasbeen completed and a vested ideological position of a majority has changed, and newbelief systems, sensitive to environmental issues, have been internalized, it becomes ofprime importance to each politician to contribute seriously to the production of environmental policy. It is common knowledge at the present time, that such a process couldeasily lead to the development of accumulative targets and standards, without muchremaining realism. Of course, serious problems will then emerge later in the policycycle, in particular in the implementation phase.

b. Politicians, citizens and institutions

De Beus, Kraan and Van MierlolVan Nispen deal with institutional dynamics indifferent manners. Institutional change may become necessary, where all otherinstruments fail, or when no other policy would produce a sufficiently efficientoutcome. If we are faced with a prisoner's dilemma supergame and if we are at thesame time unable to ensure altruistic solutions, we might use contracts as a method to

12 In 't Veld, Kroon

solve the dilemma. Of course one then needs an instrument to provide a cohesive force.Although De Beus illustrates that, in today's political practice, one will hardly discoversatisfactory formats for such contracts - among other things because the legal status ofcovenants seems gloomy - that still does not prove that it would be altogether impossibleto develop effective kinds of contractarianism in the future. Both Tullock and VanMierlo/Van Nispen deal with the case of widely dispersed benefits and narrowlyconcentrated costs. The latter authors suggest that intermediate organisations withentrepreneurial characteristics - offering an attractive good or service besides therepresentation of rather weak environmental interests - might be successful. Kraanargues that property rights legislation may provide an efficient solution to environmentalproblems. So building new institutional relations may prove to open new windows toenvironmental policy makers.

c. Implementation, politicians, citizens, and instrumentsA systematic treatment of alternative policy instruments is provided in this volume byTheeuwes, Rietveld/Van Wissen, Dietz/Termeer and Kraan. Van Dijk and Laan dealwith the role of information in regard to policy instruments, while In 't Veld writesabout a special case: the (re-)introduction of the pricing mechanism in a sector where,until now, services were provided freely by collective agencies. Widespread uncertaintydominates ex ante the insights into the effectiveness of specific future policies. Riskaversion may play an important role in solving the choice problem between differentalternative policy instruments. Thedistributional aspects ofalternative policy instrumentsplay an important role. The costs of information gathering as to the conditions forPareto optimality of certain policies may outweigh the costs. Moreover, it is notimpossible that citizens develop and reveal likes and dislikes for certain policyinstruments, independent of their effects in economic terms. In 't Veld points out thatsuch developments may be explained as the outward picture of individual inconsistenciesin the citizens' minds. According to him, an altruist and a free rider may live in one andthe same human body; even this strange combination may become a characteristic factorfor policy making in modem society. Implementation of environmental policies will becharacterized by much more uncertainty than is usual in the political realm.Effectiveness and efficiency of environmental policies are to a considerable degreedependent on the reactions of citizens and other relevant actors in society at large.Asfar as we can see, tradeable permits may prove to be a rather efficient instrument inenvironmental policies.

The lesson we can learn from the contributions in this volume is that it is notwise to discuss environmental policies in a restricted, technocratic manner only.

Envir01l11lental policy making: an introduction 13

Uncertainty, risk aversion and emotional or moral connotations contribute intensely to

the necessity for accuracy during a contingent ex ante reflection on the choice ofadequate instruments and implementation strategies. If no feasible alternative resultsfrom this systematic reflection, policy makers should move to a more fundamental level,and make a start at changing institutions or other basic arrangements in society.

Environmental protection: public or private choice. At first sight it may soundlike an obsolete notion, characteristic of the fourties or the fifties, when environmentalpolicies were restricted to the water budget and some other traditional subjects. Nolonger relevant in an era in which cabinets fall because ofconflicts about the preparationof environmental development plans.

After thoughtful consideration, however, the reader of this volume will discoverthat at the bottom of many questions and disputes concerning the merits and deficienciesof environmental public policies there is the question of the relation between private andpublic choice. Whether to act in accordance with the underlying norms, whether to

avoid or to support the objectives of the policies concerned, these are individualdecisions of prime importance to the success of failure of public policies. Moreover,public authorities may decide to intervene at the institutional level of choice and leavethe solution of some of the environmental problems to the induced self regulatingcapacities of society, and so to private choice. In particular the interdependenciesbetween public and private choice, trade offs as well as complements, cause the specificand complex problems that are dealt with in this volume.

REFERENCES

Buchanan, 1.M. (1962), "Politics, policy and the Pigovian Margins" , Economica, 17-28.

Buchanan, 1.M. (1983), "The achievements and limits of public choice in diagnosinggovernment failure and in offering bases for constructive reform", in:H. Hanusch (ed.), Anatomy of government deficiencies, Springer Verlag,Berlin.

Buchanan, 1.M. (1987), "Constitutional economics" , in: Palgrave, MacMillan, London.Buchanan, 1.M. (1989), "Rational choice models in the social sciences", in:

1.M. Buchanan, Explorations in Constitutional economics, Texas UniversityPress, College Station.

Buchanan, ].M. and G. Tullock (1975), "Polluters' profits and political response: directcontrols versus taxes", American &:onomic Review, 139-147.

Mueller, D.C. (1990), Public Choice II, Cambridge University Press, Cambridge.Tullock, G. (1984), "A (partial) rehabilitation of the public interest theory", Public

Choice, 42, 189-100.

ENVIRONMENTAL PROTECTION: PUBLIC OR PRIVATECHOICE

A. DECISION MAKING

A SPATIAL THEORETIC APPROACH TO ENVIRONMENTALPOLITICS

Melvin J. HINICHUniversity of Texas

2.1 INTRODUCTION

A new conflict has emerged among the serious conflicts in the world. The War of the

Environment will be one of the global struggles of the 21st Century. This international

clash of interests is over the control of material resources and their use. All societies

and states, democratic and otherwise, will be drawn into an unstable period of coalition

formation where agreements will be made and then dissolve. Stability will eventually

emerge when a balance is achieved between the conflicting ideological positions about

policies on environmental issues.

Environmental politics is infiltrated with ideological constructions. It is time todebate the hidden agendas of environmentalism in a forthright manner. My main goal

in this paper is to use the spatial theory of electoral competition (Enelow and Hinich,

1984) to outline the importance of ideologies in the development of environmental

policy formation in a democratic society, including executive and bureaucratic

implementation of policies.

2.2 ENVIRONMENTAL mEOWGIES

Environmentalist organizations are politically active in Western democratic societies,

pursuing confrontational strategies that often distort technological and economic realities.They argue that comfortable standards of living derived from economic opportunitiesin industrial societies are not sust:l.inable. They use results and claims obtained from the

scientific community in their media propaganda and in their lobbying efforts with public

officials, and argue that the threat to global environment is so serious that catastrophic

changes to the global ecology from human activity are possible in the future. In light

of the projected threat, they advocate immediate drastic action to protect the world.

I thank Jorge Gonzalez, Bernhardt Lieberman, Michael Munger, Houston and Diana Stokes,Robert Molineux, and Erik Devereux for their helpful comments and suggestiOllS for improving thepaper.

Environmenlal Protection: Public or Private Choice, pp. 17-38

18 Hinich

There are different ideologies among elements within the Hard Core. Some believe thatthe basic ideals of the modern age are too human centered, and that society mustconsider the 'rights' of other life forms on Earth.

A more widely held ideological position of environmentalists holds that thepresent forms of mixed economies in Western societies require more public action onenvironmental protection by all levels of government. Their basic argument forregulation is similar to that made decades ago for the control of laissez-faire economicpolicies. That is, human selfishness must be modified by governmental action in orderto protect society from negative factors of economic growth. Economists haveformalized such arguments in terms of the failure of markets to incorporate socialexternalities into market prices (so called 'public boos'). Now pollution and otherecological threats are seen to be the most important form of public bads.

As with previous conflicts, the proponents for and against the status quo arguetheir cases in terms of rights and wrongs for humanity, rather than over specific feasiblepolicies. The ideologies of the environmental movement are vital driving forces for thedevelopment of the politics and economics of environmental control. Even seeminglynarrow technical debates about issues are heavily influenced by ideologies. Ideologiesprovide a framework for intellectual abstractions about how to deal with the world. Thisessay addresses the ideological structure of the environmental debate.

The traditional engineering approach to public health problems, including airand water pollution, is to determine the most serious pollution health risks and thendevelop policies to be implemented with feasible technology while allowing for whatevereconomic development and social freedoms that are demanded by the political leadershipof the society in question.

If we keep our discussion to the technical, bureaucratic and legal intricacies ofenvironmental policies, we will be unable to make coherent predictions about theoutcomes of such policies.One reason for the inability to predict is the dependence of the scientific community onthe state, which I will touch on in a later section.

The global struggle has started with legal, political, and propagandisticskirmishes at both the international and intranational levels. We have witnessedinternational action and even a treaty on the ozone layer, and international conferenceson global warming, acid rain, and other pollution problems. The United States and theEuropean Community have passed significant legislation on atmospheric and waterpollution. The U.S. has limited oil exploration on its continental shelves at the expenseof future domestic oil production. The international ramifications for world peace fromthis policy, and of similar energy policies of various European countries, have not beenfully explored in the public debate over the environment.

A spatial theoretic approach to environmental politics 19

Questions about the protection of the Earth and the health of its people are discussed

with a religious fervor.

In order to have a dialogue about the implications of environmental policies,

we must explore the nature of pollution factors and their relationships with the

ideological nature of the struggle. I will begin by a short introduction to the spatial

theory of voting and its relationship with ideologies.

2.3 TIlE SPATIAL TIlEORY OF POLITICS

We are accustomed to describing politicians and political groups in terms of a Left-Right

scale. Extreme parties or politicians anchor the Left and Right scale for a given society,

and the major political actors are described as occupying middle positions arrayed

around the status quo.

One important purpose of spatial theory is to provide a theoretical foundation

for such descriptions, which can be given a sound empirical basis by applying

appropriate statistical procedures to preference and attitude data elicited from surveys

by public opinion polling methods. By 'appropriate' I mean statistical methods which

are derived from the theory's parametric structure. The Cahoon-Hinich estimation

procedure is such a method. This method is described in Hinich (1978) and in Chapter

9 of Enelow and Hinich (1984). Other approaches are referenced in our book.

The spatial theory of voting uses a Euclidean distance model of voter

preferences for politicians and political parties to represent political choices and voters

in a Euclidean space where the axes of the space are called 'ideological dimensions'.

This spatial representation of political choice was invented by Downs (1957) who used

a simple one dimensional representation of parties on a single ideological dimension.

Davis and Hinich (1966) introduced the Euclidean distance model of individual

preferences and developed what became a comprehensive model of electoral competition

using a multidimensional modified Euclidean spatial model that put voters, politicians,

and ideologies in single space. This model has undergone a number of refinements as

well as fundamental alterations in the last 25 years. Enelowand Hinich (1984) present

an introduction to this theory, and some further advances are given in a volume edited

by Enelow and Hinich (1990).

Let me use the simple Downsian model to briefly introduce the theory, but in

the way that I presently interpret it. Downs built his spatial model for two competing

parties. Each party is modeled as a point on a Left-Right ideological axis (a line). The

parties decide on policy positions to move their ideological position to the point on the

ideological line which bisects the distribution of each voter's most preferred ideological

position.

20 Hinich

Downs interprets his single axis as an economic Left-Right ideological

dimension. Each voter has an ideal poiN, a most preferred position, on this Left-Rightaxis. Call this point XI for a voter labeled i . Suppose that there are two parties runningin an election. Each party is conceived to be a point on the axis. Let 7te denote theposition of party one and let 7t. denote the position of party two. The central choiceassumption in spatial theory is that voter i will vote for party one if and only if hisideal point Xi is closer to 7te rather than 7t•. Since the space is one dimensional, thereis no ambiguity in the term 'closer'.

The units in the latent ideological dimensions are not measurable, and are thusarbitrary. Distances are discussed relative to an arbitrarily fixed scale unit.

If the space was multi-dimensional, then we need to define a distance measure

to make 'closer' unambiguous. The simplest distance definition in multidimensionalEuclidean spaces is Euclidean distance, but there are other distance metric for Euclideanspaces. The Davis-Hinich model uses a weighted Euclidean distance metric (see Enelowand Hinich for details).

In contrast to the Downs spatial electoral competition model, the main actorsin the Davis-Hinich theory are individual politicians. This is appropriate for the studyof American politics where most elections are contests between individuals rather than

parties. The Democrat and Republican parties are loose coalitions of regional interestsor interest groups. Many American politicians do not emphasize their party affiliationwhen running for office. If we are discussing a parliamentary democracy, then voters

choose among a number of parties. Some of these parties have held or do holdministerial portfolios, and some have never been part of a government.

To encompass both strong and weak party democratic systems, I use the termpolitical choice for the main actors in the system. In the American system, citizens maychoose to participate in the complicated selection process of party nomination, but mostvoters only choose to vote for a candidate of one of the major parties for each race ina given election. Since many voters valuethe personal attributes of individual candidatesover their party affiliation, the political choices in America are politicians.

In the Downsian model the political choices are two political parties, which aremodeled as points on an ideological dimension. Various scholars over the centuries havehad their own special definition of the concept of ideology. It is one of the classical'fuzzy' concepts in social thought. Different people have different meanings about'ideology' but use the term as if it was well defined.

Downs conceives ideology to be in information device by which parties definethemselves to the electorate and then bind their future actions to establish credibility.Hinich and Munger (1990) build on this concept but argue that ideological positions areimbued with moral values, and that the intellectual and emotional investment in an


ideological position makes it hard for new positions to enter and attract votes and

money. There may be many fringe ideologies which have some support in the society,but politicians who adopt these non mainstream positions have little chance of gettingelected in normal times.

Successful ideological positions are costly to develop and difficult to changesince they need a lot of investment over time to be seen as legitimate and effective for

governing a society. The high cost of establishing a viable ideology limits the numberof such ideological positions on the ideological dimension (or dimensions). A given

voter may have a most preferred ideological position on any point on a given ideologicalaxis, but the viable choices that he faces are small and discrete according to the

Hinich-Munger revision of the theory of spatial electoral competition.

The politicians who associate themselves with the dominant ideologies mustcontinuously prove their commitment to the ideological position they adopt byadvocating policies and positions consistent with the ideology even though they may

alienate voters in their constituency. The moral imperatives that are used to legitimatethe ideology of the party or group limits the flexibility of politicians to use pragmatic

and opportunistic tactics to achieve their goals if such deals can attract publicity. It isin the interest of ideological leaders in a party to bring to public attention pragmaticdeals by members of their party.

At this point let me discuss an important difference between the way the'Downsian economic' dimension is usually presented, and the way I see this dimension

as a function of the empirical work that I have done over the years and as a result of

my efforts to make sense out of what I see and read about politics.

Downs explicitly borrowed the spatial location model of Hotelling to modelvoter party and voter positions on an ideological "linear scale running from zero to 100in the usual left-to-right fashion" (Downs, 1957, p. 115). He then finds it useful to

interpret the scale as the level of government intervention in the economy. Parties arefree in his model to adopt platforms to position themselves anywhere on this scale justas a firm in Hotelling's model can locate anywhere on a road. This is a classicalfrictionless economic model of firm behavior.

The Downsian approach to spatial voting conceives of the Left-Right dimension

as representing the amount of government intervention in economic market processes.

On the far Left we have complete intervention (the Marxist/Leninist ideological point)and on the far Right we have no intervention other than the protection of property rights(the classical Liberal - Free Market ideological point). In between we have variouseconomic compromises including the status quo.

This concept ignores the realities of parties and candidates raising money from

interest groups in order to get elected. Although a party of 'true believer' can raise

22 Hinich

money from the ideologically committed, economic interests want something from the

government. They can want special favors on special issues. But most organizedinterests realize that a stable solution for getting a government that will further theirends is to favor ideological positions that are similar to what they see as the morally justand economically efficient order.

Take a look at the Left and Right in developed democracies. The parties on theLeft are supported by coalitions of social service bureaucrats, the state educationalestablishments, most labor unions, and various economic interest groups, such as thehousing industry, that prefers an easy money policy from the monetary authority of thecountry. The parties on the Right are supported by coalitions of industrialists andbankers who want a tighter money policy (except when they are in financial trouble) andother interests who are in opposition to the Left and to the status quo. The economicpolicies which are pursued by politicians on the Right are often at odds with the puretheory of free market competition developed by classical Liberal theorists even thoughthese politicians selectively use such theories to make arguments against marketintervention policies made by politicians on the Left.

I interpret the economic dimension of ideological conflict in a different way.It is not a simple location scale of economic ideologies. In my view any ideologicaldimension is a cleavage that pits alternative and opposed ideological positions from thestatus quo. The extreme points are usually a type of fundamentalist 'pure' oppositionto the status quo. I define the Pure Left on a dimension to be an extreme position thatwants to change and 'purify' the status quo by using new and untried methods, and thePure Right to be an extreme position that wants to the move the status quo back to anidealization of the economic order of the past. In between these poles we have variouscompromises that favor various interests. These intermediate points exists in a spacedetermined by the dialectics imposed by the ideals and ideas of the extremes.

Let me now briefly contrast this spatial concept of ideology and one of thestandard definitions of the concept. An ideology is usually conceived as a world viewheld by someone who has strongly held beliefs about what is right and wrong. Anideology is an organized and seemingly coherent set of propositions about society.

In the new theory of spatial ideologies, individuals mayor may not be able toarticulate their beliefs. Al that is assumed is that each voter has an ideological positionat some level of awareness, and apply some sense of what is right or wrong about thepolitical and social choices. The alternatives are modeled as points in a Euclidean spacewhose axes are ideological dimensions.

The moral and ethical nature of political choices in the Hinich and Mungerapproach is fundamentally different from the Davis and Hinich (1966) approach to

multi-issue spatial electoral competition. In the Davis-Hinich model, the choices are


candidates who advocate a platform of bundles of policy positions. The Davis-Hinichchoice model can be applied to a space of brands of beer or bread where the axesrepresent attributes of the product class. The brands have no ethical or moral attributes.The Davis-Hinich theory is also an adaptation of classical micro-economic choicetheory, but unlike the approach of Downs, ideologies do not play any role and allparticipants have complete information about the system.

Another special aspect of the Hinich-Munger concept of an ideological spaceof choices is that it can only be empirically determined from data on the preferences andattitudes of voters obtained from interviews and other social psychological measurementinstruments. Each ideological dimension is a latent dimension, Le. it is not directlyobserved or measured. The discrete ideological positions on a dimension are alsoimplicit. The arguments that are made to justify and lend support for a given ideologyhelps to define a position in the minds of the people, but in is important to emphasizehere that the space that we are discussing is an intellectual model of voter perceptionsand attitudes in a society.

We argue that the ideological dimensions reflect the way that ideologies arederived as a dialectic struggle about the status quo, and that alternative ideologies areschisms of a dominant belief system propagated by people in power to justify their claimto rule.

For a model to be useful, there must be a way to measure and validate it. Thedimensionality of the space and the positions of the choices in the space is not determined by an expert or some outside observed, but is determined empirically from dataabout voter preferences for parties and candidates using a variety of statistical estimationtechniques that can be lumped together under the label statistical multidimensionalscaling methods. The Cahoon-Hinich method estimates the parameters of theDavis-Hinich weighted Euclidean distance model of choice.

2.4 POLITICS AND IDEOWGICAL DIMENSIONS

The empirical concept of a space of political choices means that the interpretation of thespatial axes is ambiguous. The meaning of the dimensions has to be determinedempirically using the issue linkage model first introduced by Hinich and Pollard (1980).This model is presented in Chapter 4 of Enelow and Hinich (1984), and will be sketchedbelow. Consider a specific economic issue such as the level of unemployment insurance.Let us conceive of this issue in terms of a ten point scale where 0 represent no insuranceand 10 represents the payment of the salary of an involuntarily unemployed person bythe state as long as that person can not find an equivalent job at the same salary (orhigher). The points between 0 and 10 are intermediate levels of insurance support.

24 Hinich

Although a legislator or a finance ministry bureaucrat may conceive alternatives on this

issue in terms of the amount of state budget that would be needed to finance a givenlevel of insurance rather than a point on a finite scale, it is more reasonable to modelpreferences of even informed voters in terms of a simplified scale where the extremesare well defined alternatives. Even specialists may not really perceive the alternativesin terms of budget categories.

Let 0, denote voter i 's beliefabout the position ofparty one on the issue. Let 1todenote the status quo ideology (the present government's explicit or implicit position),and let b, denote the status quo on the issue as perceived by voter i . The model linkingthe ideological position 1te to the issue positions is the following linear model:

(1)

where v, is an idiosyncratic translation parameter. For party two, whose ideologicalposition is denoted 1t., voter i believes that its position on the issue to be of the form.,=b, +v,(1t. -xC». The Greek letter 0 and t are labels for the two parties that havebeen used in my previous work.

Let us consider some simple examples. If v,=O, then O,=b, which is theperceived status quo. For such a voter ideological positions do not affect his perceptionsabout the choices since he believes that the status quo will prevail.

If v, =2, then 0, -bi =2(1te -xC». This means that if the ideology of party oneis one unit to the right of the status quo 1to' then voter i believes that party one willadopt a position on the issue which is two units (in the issue units) to the right of hisperception of the status quo (b,). The beliefs of the voters about what parties will doif selected to govern are linearly linked by this model with the common perception~

about ideological positions in the latent space of fundamental ideological positions. Ifthis model is a reasonable representation of the complexity of voter perceptions, thendata about voter perceptions can be used to estimate the ideological positions of theparties (or candidates). Such estimates should match the maps produced from attitude

data using multidimensional scaling methods (Cahoon, Hinich, and Ordeshook, 1978).Preliminary results show that they do (Enelow and Hinich, 1989).

The Cahoon-Hinich method has been applied to a number of American electionsurveys. The results reveal that there are two underlying ideological dimensions inAmerican politics (Enelow and Hinich, ch. 9).

Other polities are also better described by two rather than one Left-Rightdimension. Pappi (1990) has applied our method to survey data from a sample of voters


in the Federal Republic of Germany. He obtains a two dimensional map of German

parties.The second dimension is more difficult to label or explain in simple terms. This

is true for the U.S. results as well as for Germany. In our book we describe the seconddimension in terms of social issues. Now I believe that the second dimension is anideological cleavage whose positions are mapped into political issues that are not strictlyeconomic, which includes issues about freedom to purchase and use products that 'harm'the environment, and 'women's rights' issues. The extreme positions on most of thesenon-economic issues require changes in the behavior of citizens that are not driven bydecentralized price or quantity changes in the market.

Let me use almost the same words about this second ideological dimension thatI used above for the economic dimension. The extreme points are usually a type offundamentalist 'pure' opposition to the status quo. I define the Pure Up on thisdimension to be an extreme position that wants to change and 'purify' the social andenvironmental status quo by using new and untried methods, and the Pure Down to be

an extreme position that wants to move the status quo back to an idealization of thesocial system of the 'Good Old Days'. In between these poles we have variouscompromises that favor a continuation of the status quo with some modifications. Theseintermediate points exists in a space determined by the dialectics imposed by the idealsand ideas of the extremes.

The model summarized in expression (l) will now be expanded to formalizea link between environmental as well as economic issues and the two ideologicaldimensions. It is easier to use an environmental issue which can be measured in money:the amount of anti-pollution devices which are required to be installed in a privateautomobile. Once again lets conceive of this issue in terms of a ten point scale. In thiscase 0 represents no devices at all, and 10 represents all the devices conceived of byanti-pollution engineers.

Let ai2 denote voter j 's belief about the position of party one on this pollutionissue. Let ail denote voter j 's belief about the position of party one on the unemployment insurance issue used in Section 2. Let 1tOl denote the position of the status quo onthe "economic" ideological dimension, and let 1too denote the status quo position on thesecond dimension. Let bil and bi2 denote voter i ' s perceptions of the status quo on theinsurance issue and pollution issue, respectively.

Let 1tel and 1tel denote the ideological positions of party one on the twoideological dimensions. The model linking the ideological positions of part one to theissue positions as perceived by voter i is given by the two linear models:

26 Hinich

(28)

(2b)

where Vill , VjJ2' Vill' and vm are idiosyncratic translation parameters. The model for

the linkage between the ideological positions K t1 and K t2 and the perceived issue

positions • u and t 12 is the same as (2a) and (2b) with t instead of 6.Returning to my interpretation of the second ideological dimension, I believe

that a position on the upper part of the second axis is an ideology for a harmonious,

conformist and stable social order of an idealized 'golden' past era. This is the up or

conservative position on the second axis.

A position on the lower part of the second axis is an ideology for an alternative

harmonious, stable and conformist social order which is different from the status quo

in a direction opposite from the conservative positions. There are often a number of

subcultures in a society that are competing to establish their own version of the happy

and safe society. Most so called non-eonformist groups are very conformist if notauthoritarian within their own social constructions.

Thus both up (move back) and down (try radical policies) positions on this

other dimension represent collectivist and conformist social orders that are enforced by

police action. The main differences revolve around what is good and bad, and who shallrule the social order.

Consider the loosely organized collection of activist groups which I call thehard core of the environmentalists (they are called Greens in the European press). Thesegroups, which have different version of what they consider to be pure'environmentalism' attempt to appeal to a broad spectrum of citizens from the rich tothe poor and from the young to the old.

There is an interesting parallel between these organizations and evangelicalChristian churches. The various factions share some ideological attributes but distinguishthemselves from the status quo and each other in many different ways. They use rhetoric

that appeals to people's social concerns and also plays on people's fears. But unlike the

Christian sects environmentalists want to save the world. The bads and goods of

environmentalism is secular. Yet both types of organizations are led by people who

often have a yen for the 'good life' of the wealthy.

Environmental issues affect all groups in the society. Since I believe that there

are two cleavage dimensions in most societies with the second dimension linking to the

environmental issue, the ideological positions in the space could be in any of the four

.A spatial theoretic approach to environmental politics 27

quadrants of the plane. Right wing voters may favor up or down positions on the second

dimension, and similarly for the left wing voters. One important reason for expecting

a great diversity of ideological positions on the second dimension is that there are such

diverse beliefs about risks from environmental hazards.

So where are positions on the second dimension which represent free and

flexible approaches to the organization of public life in a democratic society? I claim

that they are in the center which will be near the status quo, except for societies whose

ruling coalition is totalitarian. Freedom exists when no social order can dominate the

society by force of law.

The ideological space represents a common perception of political choices

available to the whole electorate. Most voters have a limited understanding of the links

between these positions and policies. We assume that they develop a sense of what these

positions imply from past experience with parties, politicians, and interest groups, as

well as from what they read and hear.

Various special interest groups and political activists, on the other hand, willhave a more sophisticated understanding of the issues that link with ideological

positions. They have more incentive than do most citizens to invest in political

information.

An indiviGual's perception about the link between an ideological position and

a position on a specific issue is jointly determined by his education, experiences in life,

social background, and form of employment. Turning to the environmental issue, most

people want a save and clean environment but most do not understand the technical and

economic aspects of specific alternatives for improving the present state of affairs in a

given country.

2.5 A CLASSIFICATION OF ENVIRONMENTAL ISSUES

Individual assessments of risk are an essential part of the mental process by which

people react to issues that involve risk. For example, a person will purchase home

insurance if he believes that there is a reasonable chance that his house will suffer some

accidental damage and if he believes that the insurance company will pay a proper

claim. Most people expect their government to make sure that insurance companies are

solvent and that the legal system will insure that insurance works. If not, then there will

be public demand for other types of insurance, including self insurance.

When the risk is hard to understand, citizens in a modem society expect more

of government. Before the rise of the modem state, people looked to their family and

28 Hinich

perhaps their neighbors for help in an emergency. Natural disasters were attributed to

God's will.Now we attribute many good and bad unexpected events to the action of the

ruling government. Any risk that is seen as being beyond the scope of individualprevention (and some that are) is expected to be covered by some sort of political andsocial institution. This section suggests plausible connections between positions onenvironmental issues and positions on the up/down cleavage dimension, which I willdenote 'social' for lack of a better label. Most environmental issue involve theperception of risk to people living today and to future generations, and do not have asimple economic linkage.

To help understand how positions in an ideological space translate intoperceived positions on basic environmental issues, let me present a categorization of

such green issues. Each category will be labeled as 'economic' or 'social'.

I divide environmental problems into five categories. The first category consistsof pollution of the air and water from natural and man made harmful chemicals. Wewant to have clean water that is uncontaminated by sewage and harmful chemicals.Provision of safe drinking water and good air quality are classic public goods.Determination of safe levels is a complicated issue that involves biological science aswell as social choices and politics. This category is 'economic' more than 'social'.

The engineering of clean and safe water supplies is one of the most importantpublic works projects of a developing industrial society. Western countries developedpublic engineering bureaucracies in the 19th Century to provide a safe water supply tourban areas. The Romans developed such public works two thousand years ago.

The benefits of such projects are usually clearly larger than the costs as longas the projects are efficiently engineered and implemented. But since nothing is perfectlysafe, what trade-off should be made between safety and cost? This question has neverbeen left solely to the engineers, and now it is one of the most important issues inpollution control.

The second type of pollution problem is aesthetic contamination of the environment. Visible dust and dirt in the air that is not at a harmful level of concentration isone example of this kind of contamination. Another is litter because many people findsuch debris offensive even if it is not harmful. There are differences of preference inthe population for the value of controlling such pollution relative to the cost to taxpayersand the limitations of behavior. For example, many people are unwilling to pay acontainer tax to finance the cleaning up of litter.

A third category involves harm to wild animals and plants due to pollution anddevelopment. Some people are willing to forgo any and all development in a region ifsuch development will eliminate certain bird, insects, or flowers that are considered rare


or special. This type of environmental issue is of importance to development around

Austin Texas, the city where I live. This category is mainly 'social' but there are

economic consequences of restrictions on development to make the countryside prettier

or to save wildlife. A great deal of controversy rages about the importance of such

environmental threats relative to the costs imposed on property owners and taxing units

of government.The fourth category consists of possible long term catastrophes such as global

warming due to the 'greenhouse effect', ozone depletion, global cooling, and the like.

This category is 'social'.

Most analyses of long term changes in the ecological status quo which are taken

seriously by the media and politicians have been developed by natural scientists who

work in universities or government laboratories. Pronouncements by academic natural

scientists are treated with a level of respect by politicians that is not given to other

citizens, including scientists who work in industry. The common theme in these

arguments is that terrible changes will occur in the world unless governments act tochange energy use, and spend public monies to develop technologies favored by such

scientists.

Scientists are generally treated as impartial experts by politicians and the press.

They are treated with a level of deference that many societies reserve for clerics and

military heroes. But scientists must struggle to obtain research funds, and are thus part

of a political process that is heavily influenced by ideological factors. Science is not

above politics, but it is not obvious how politics affects the research agendas of working

scientists. This is a matter that deserves more critical and scientific attention.

The unforeseeable uncertainties and endogenous changes in the world economyand ecology are usually ignored in most of the 'scientific' arguments. The forecasts of

doom are made with an air of certainty by the propagandists of catastrophes. Theseanalyses usually understate the inherent uncertainty about future technologicaldevelopments for new and different energy supplies which are driven by market forcesthat determine the prices and quantities of energy factors. These analyses often treat

prices and supplies as fixed over the long run unless governments take positive action.

The economic and technical factors of environmental politics are often treatedwith less respect by policy makers than are scientific forecasts of trouble. Environmental

economists are asked to come up with numbers for social benefits and costs by partici

pants in the political process of policy formation, but it is understood by the

sophisticated players that the economists are not ideologically impartial. Mosteconomists claim impartiality, but there is a greater awareness of ideological biases in

social science by today's political elites than was the case twenty years ago.

30 Hinich

Although politicians appear to treat the scientific community as impartialexperts, it is not at all obvious that ordinary citizens believe them. Only wellconstructed public opinion polls can help determine how much credibility people assignto the publicity of long term risks.

A fifth and special type of catastrophe is nuclear power. Nuclear power hasbeen treated as an economic issue, at least initially, but now it is mainly relates to the'social' dimension.

Many people have an irrational fear of nuclear radiation. People will grossly

overestimate the risk of nuclear contamination from nuclear power plants and evennuclear medical devices. There is a lot of scientific controversy about what constitutesa harmful dose of radiation.

Regardless of expert opinions about radiation safety levels, most people areterrified of the threat. One reason for such terror is the development of nuclearweapons; the other is the skepticism that people have developed about experts in thenuclear and chemical industries. Development of what are argued as super-safe nuclear

power plants is a highly divisive issue in most Western societies, even when a countydoes not have a secure and cost effective alternative source for generating electricity.The recent referendum in Sweden on eliminating nuclear power is an example. Here thedifferent perceptions in the electorate about the risks from nuclear versus conventionalpower plants is crucial to an understanding of the political dynamics.

2.6 ENVIRONMENTAL POLICIES AND THE IDEOLOGICAL SPACE

Each type of environmental issue has a somewhat different relationship with positionson the economic and social ideological dimensions. Pollution from industry, the cuttingof forests, threats to wildlife, and nuclear power issues tend to be perceived as aconsequence of capitalism and industrial development. The pollution from automobilesand conventional power plants are seen to require regulation of individual behavior bythe government. The same holds for the control of litter and other such aestheticcontamination of nature.

In capitalist countries, pollution is blamed on industry and on greed.Economists have come up with various theories of market failure in order to justifyintervention by governments in markets. Such economic theories merely bolster themain thrust of environmental legislation, which is direct regulation using the power ofthe state. Admiralty Law applies to tanker traffic, and there are various governmentalagencies that police the air and water in any developed country. Most regulation is done


by a combination of administrative rule making by governmental agencies, and a formof police action to find and punish violators of environmental laws.

The economic and social costs from direct regulation are alleged to be justifiedby the risks to society from pollution. But who determines the level of risk, to whom,and under what criteria? Who calculates the social costs, and how (Lave, 1987)? Theseare crucial questions to public acceptance of such regulation.

Such administrative regulation creates more positions and prestige for lawyersand managers both in the private and public sectors. In the United States with its highproportion of lawyers in the population of professionals, environmental policies arepursued by civil suits which are brought against firms and governmental regulatorybodies brought by groups who claim to represent the 'public interest'.

The Sierra Club, National Wildlife Foundation, Environmental Defense Fund,and Friends of the Earth are examples of such groups who bring civil suits to enforcestrict interpretations of environmental laws. Some groups, such as Greenpeace, havespread to England, Australia, New Zealand, and other democracies. Someenvironmental organizations have come to the United States from abroad.Environmentalism is a worldwide movement.

These activist organizations harass the regulators but they create a demand for

more administrators who have a speciality in environmental administration andregulation. This inl;rease in administration is in the economic and social interests of suchadministrators since it increases the demand for their services.

Activists may hold any position on the economic ideological dimension, but itappears that many of them tend to support political parties which are to the left of thestatus quo. Many American environmentalists appear to have formed a coalition withthe AFUCIO. This mega union supports strong environmental action by the governmentto help the Democratic Party attract environmental voters, even though, as is the casewith our steel industry, such action makes the domestic industry less competitive in theworld market.

The union leadership must believe that their interests are best served by sucha coalition. These unions support legislation for strict emission control, and also askCongress for legislation to protect them from foreign competition. Such protection tendsto raise the wages of the union members who still have jobs. They are workers who aremost likely to vote for the incumbent labor leaders. The environmental administratorsare made better off by the increased demand for bureaucrats and managers who overseethe Clean Air regulations.

Politicians on the right of the status quo in most countries are supported byfirms and groups that want to set up monopolies under a nationalistic rationale. Thusthese politicians do not favor free competitive market policies for all phases ofeconomic

32 Hinich

activity. The right flank on the economic dimension is nationalistic or in some area

regional (the European Community for example). Then people who prefer positions on

the right of the economic ideological axis can also be strong environmentalists. Manyof the core supporters of the environmental organization are wealthy, and wealthy

people tend to prefer positions on the right. Wealthy individuals also prefer

environmental policies that will restrict freedoms of less wealthy citizens: to use

automobiles, entertain themselves in public 'wilderness areas', and to use disposable

bottles and containers. The wealthy want to preserve their position in society while

shifting the cost of maintaining an aesthetically pleasing countryside and urban environ

ment onto the general rate payers.

It may also be the case that the hard core activists wish to make the second

dimension the more important axis of political competition. This would give them more

political power since they would get support from the Left and the Right, as well as

from people in the center. Thus environmentalism may be a strategy to realign politics.

People with power as well as wealth and standing in a society tend to patronize

the ordinary citizenry and especially the poor. The public welfare nature of most

environmental pollution problems make them a convenient vehicle for those elites who

wish to use the power of the state to modify individual behaviour for 'the good of all'.

The lawyers and administrators are agents of these elites, but have become the drivingand creative force in many sectors and thus have taken a lot of control away from the

wealthy and powerful.

The economics professionals are caught in a professional dilemma. Most econo

mists are closet bureaucrats. Since economists tend to favor a market incentive approach

to regulation, economists are caught between their professional beliefs in markets andtheir desires to be part of the regulatory apparatus. As a result of this cross pressure,

they create market oriented theories for achieving the desired control of behavior by agovernmental allocation of property rights.

There are many environmental economists who argue that the economicallyefficient approach to regulation is to develop a market for effluent permits which will

allow the transfer of property rights to pollute. These arguments are based upon the

ideology of free markets. Such an ideology is often interpreted as 'right wing' and is

decried by those who want to expand the power and scope of government. A market

approach to regulation is not seen as an effective instrument for career advancement of

administrators as compared with the administrative control approach. The market

approach is not generally favored by 'practical' politicians, although some politicians

on the right often use free market rhetoric.

Whereas groups on the right attempt to suborn market processes to obtain

economic gain, the left is against free markets by ideological imperative. Although the


left parties in Western democracies have been slow to realize the political importanceof green issues to the middle class (especially among the members of the management

class), they have the tactical advantage to position themselves on popular positions ongreen issues since they have a reputation of being opposed to corporate power and to

the 'establishment' status quo.

2.7 THE CENTER

Public opinion polls show that people perceive corporations to be pursuing profits at theexpense of 'the environment'. Many people want the government to intervene andmodify individual and firm behavior so as to protect themselves from what they see asa threat from industry. Social interventionism has become acceptable to most people.

Hard core environmentalists are actively prophesying dire consequences fromthe present usage of energy and from modern agricultural methods. If people weresufficiently frightened by propaganda about their security, then they would be willingto pay a lot for protection and would be also willing to sacrifice freedoms for security.It will be interesting to see if people will agree to use bicycles instead of an automobileeven if the price of gasoline remains relatively low. How will people shop, especiallyin bad weather? It is easy to talk about alternative life styles. I am skeptical that peoplewill voluntarily agree to adopt the alternative life styles advocated by environmentalists.They will have to be coerced to change the way they consume. Democratic institutionsmay be at risk from the grandiose demands of environmental ideologies.

Many middle class citizens believe that they will be better off with a lot of thepolicies advocated by environmentalists. It is difficult for individuals to determine howtheir preferred ideologies translate into real changes in their way of life. Our model ofthe linkage between ideological positions in the latent ideological space with policyoutcome attempts to provide a theoretical foundation for the study of way people makepolitical choices in a noisy and confusing world. Most people and politicians muddlealong, and thus we do see a good deal of muddled environmental policies beingdiscussed or even implemented.

The reader may think that such a story is inconsistent with the observedbehavior of people who drive fast sports cars and who are opposed to nuclear power andthe use of pesticides in agriculture. Our spatial theory allows for different groups to

have different perceptions about the way ideological positions link to positions on policyissues. We assume that all people perceive the same relationship among the ideologicallabels and positions in their political society, but they can have different hypothesesabout what these positions imply for public policy. They are consistent about what they

34 Hinich

like and dislike (or love and hate) but they do not have to understand the economic andsocial consequences of their beliefs. These consequences will show up in the future, butthe future is inherently uncertain.

Policy formation in a democratic society usually results in compromisesbetween clashing interests. The status quo position is usually in the center of political

maps derived from scaling algorithms. Change in democratic societies seems to be verygradual even through the major results in social choice theory imply that democraciesare unstable if there is more than one ideological dimension. The early expression ofsuch an instability results is the Condorcet Paradox (Davis et aI., 1972; McKelvey,1976).

One reason for such policy stability in democracies is that a party or a partyfaction emerges that prospers by making deals between groups and individuals who arewilling to pay politicians to preserve property rights from the incursion of the government. Such a centrist political trading group is able to function because most people arenot well informed about the details of policy formation, and more importantly, policyimplementation. Most people economize on their time and effort by implicitly delegatingthe decision making authority to their elected representatives and executives, even ifthey didn't vote for the people who got elected. People expect to be ruled, and arewilling to pay for such rule, and obey the law as long as the rulers seem to know whatthey are doing and the outcomes are not too bad.

Thus a group of professional politicians who are able to stick together and makedeals between the people with money, power, and strong ideological imperatives willbe able to govern by compromise. If they lose power to a competing group, the newwinners will have to appear to be reasonable and centrist if they are going to get enoughvotes to upset the old status quo.

Most democracies have implemented stable policies by delegating decisionmaking powers to ministerial (or in America, departmental or independent agency)bureaucracies. Policy issues are divided into jurisdictions under the control of ministries.These ministries are very jealous of their turf, and fight among themselves when apolicy requires action by several agencies among the ministries. The executive or thelegislature (depending on the country) tries to manage these bureaucracies by controllingtheir budgets and administrative procedures. The ministries and agencies fight forpolitical autonomy and then try to centralize control of the agencies in theirorganization. Such bureaucratic squabbling is part of daily life of government,democratic or dictatorial.

By delegating the operation of policy formation to agencies and then controlling

them by budget manipulation and jurisdiction control, the politicians of the deal making

center can keep a measure of control over policy making. This bureaucratic system of


rule making, modified by the judiciary, the legislature, and the executive makes thestatus quo stable. Special interests strive to affect policy by getting their agents into highpositions in the ministries if at all possible. The professional civil service makes thisapproach difficult in many democracies. As an alternative route, special interestsinfluence the process by providing the bureaucracy with information about theimplications of policy alternatives.

Only in a time of crisis and instability will non centrists be able to obtain themoney to propagandize for the votes of the disaffected. Doomsayers and extremists are

constantly competing for attention in any society, but they usually are relegated to thefringes. The advent of TV news has given the extremists opportunities to obtain a levelof publicity that would be impossible in the days when the main source of informationfor people were newspaper articles and political statements made by local opinionleaders. But such TV free publicity for the extremes have little impact on policy as longas the major political players compromise on giving something to most people and keepcontrol ofthe governmental budget. The skillful and powerful get the biggest take, thebureaucracy grinds away in its routine, but most people get something (or believe theydo) from the centrist compromisers of modem democratic policy formation.

The position of the Center on environmental issues is to try to work out acompromise that will satisfy enough of the activists' demands so that the governmentcan claim that it is working to clean up the air, water, etc., while not raising taxes toomuch or imposing great costs on industries that will cause a political backlash. Theability to compromise between economic interests, technological solutions, and hardcore environmentalism requires some sort of trade-offs between concepts about a perfectworld and costs. Since a segment of hard core environmentalists are socially andpolitically powerful, they have the skills and resources to manipulate public opinion andaffect scientific thinking so as to move policies toward the goals which they prefer.

One approach of the sophisticated activists is to let their less sophisticatedfollowers generate publicity by staging demonstrations and protests, and then thepolitically sophisticated group takes advantage of such publicity to lobby the governmentfor their programs. Since most citizens are unaware of the costs of such policies but areworried about pollution and other publicized dangers to their health and well-being, themain opposition to the hard core is business groups who are worried about theirproperty rights and profits. This makes the opposition appear to be selfish and withoutpublic spirit in the perceptions of ordinary people and most importantly, for the swingvoters in the management class. Such clashes between economic and social freedoms andenvironmental purity may make the center unstable.

36 Hinich

2.8 SCIENCE AND mEOWGY

Science has been held in high esteem since it was seen by the public to hold a propermonopoly in the generation of new knowledge (Theocharis and Psimopoulos, 1987).Scientists were supposed to share a rational perspective on evaluating scientific findings.The 'rational scientific method' has come under attack even by certain groups ofscientists.

Modem 'big' science requires a lot of money, and the quest for money affectsthe scientific enterprise. Scientists in or out of academe are not impartial since theircareers and incomes are affected by what they say and do, and this fact is true even forthose who do not expect to become advisors or consultants to governments or industry.Although academics can obtain tenure in the U.S. after a number of years of teaching,research, and bureaucratic maneuvering, those who seek research funds have to beaware of what the funding agencies want to fund. Since ideologies impact politics, andpoliticians directly or indirectly determine the budgets of the major scientific fundingagencies, scientific progress is influenced by dominant ideological constructions evenwhen the active scientists are unaware or even antagonistic to these ideologies.

Consider two scientists of equal ability, experience, graduate student support,etc., who are striving for research support to study global warming based on the samenumber of years of research in this area. Suppose that one scientist uses one model thatresults in an inference that his data shows no statistically significant global warmingeffect, while the other uses another, but equally plausible model to arrive at the oppositeinference. The nature of the funding process is that the scientist with the positive (forwarming) result will obtain funding with a higher probability than the one who makesthe negative inference.

The logic of scientific inference is that one can obtain results that will falsifyan hypothesis. An hypothesis can only be rejected, not accepted. An hypothesis can berejected by analyzing data in a systematic manner consistent with what is considered inthe profession to be good scientific practice.

One can chose how to construct the received hypothesis, or what is called instatistics the null hypothesis, after doing an experiment and analyzing the data in orderto influence how the results are interpreted, without any data fiddling. The languageused to describe the null hypothesis and the inference made from the data has aprofound impact on the impact of a study on a controversial topic. In other words,statistical and scientific language can be as tricky as legal jargon in influencing policyoutcomes.

If. spatia/theoretic approach to environmental politics 37

For example suppose that the received (null) hypothesis is no global warming,

then a statistically conservative inference is to not reject the hypothesis. In the

convoluted language of statistical inference, this means that one does not reject thatthere is no global warming. Using plain language one then can say that "the data areinconclusive". There mayor may not be global warming, but data analysis does not leadone to reject the null hypothesis.

If the analysis rejects the null hypothesis, then one says that the data are"inconsistent with the null hypothesis", which in this case is "no global warming". Thisstatement is confusing to most readers. In plain language we would say that "there isglobal warming".

If the null hypothesis is chosen to state "there is global warming", then theconservative inference is to not reject global warming. Now using the term "inconsistentwith the hypothesis", one can say "the data is consistent with global warming" rather

than saying in plain language that "the data is inconclusive". Since there existsuncertainty in any experiment, one can not negate the statement "there may be a globalwarming effect".

I have described a subtle way to affect the impact of a scientific study. There

are less subtle ways short of changing the numbers, and they include among others,1) the timing and location of the experiment, 2) the instruments used in the study, andthe choice of the theoretical models used to analyze the data.

In short, the quest for funding impacts the behavior of scientific inquiry. A

scientist strives for material and psychic rewards as does anyone who tries to do something. Compared with what lawyers, businessmen, and politicians do, scientists areremarkably clean as a group, but the bigger the stakes, the more likely the corruption.And the more complex the technologies that are involved in such issues, the moredifficult it is for anyone to monitor the game played by the scientific community.

2.9 CONCLUSION

The first requirement for laying out a strategy to deal with environmental issues is to

establish an institutional structure that will promote scientific objectivity. Scientificobjectivity is impossible if 1) the incentives undermine objectivity, 2) it is viewed as aphilosophical impossibility, and 3) no attempt is made by informed citizens to organizethe ideological debate on the issues. To deny the ideological nature of the problem isto avoid reality and to cultivate chaos.

It is important to determine the relationship between the ideological 'space' ofparties and politics, and the ideological constructions of environmental policies. There

38 Hinich

are hidden agendas in environmental policies which are linked to political and economic

realities. Some of these links are not all obvious. The ideological nature of

environmentalism has been discussed, including the distortions in 'scientific' interpretati

on of evidence.

REFERENCES

Cahoon, L., M. J. Hinich, and P.C. Ordeshook (1978), "A statistical multidimensionalscaling method based on the spatial theory of voting", in: P. Wang (ed.),Graphical Representation of Multivariate data, Academic Press, New York,243-278.

Davis, a.A. and M.J. Hinich (1966), "A Mathematical Model of Policy Formation in

a Democratic Society", in: J. Bernd (ed.), Mathematical Applications inPolitical Science II, Southern Methodist University Press, Dallas.

Davis, a.A., M.H. De Groot, and M.J. Hinich (1972), "Social preference orderingsand majority rule", Econometrica, 40,147-157.

Downs, A. (1957), An Economic Theory ofDemocracy, Harper and Row, New York.Enelow, J.M. and M.J. Hinich (1984), The Spatial Theory of Voting: an Introduction,

Cambridge University Press, Cambridge.

Enelow, J.M. and M.J. Hinich (1989), "The location of American presidential

candidates: an empirical test of a new spatial model of election" , Mathematicaland Computer Modelling, 12, 461-470.

Hinich, M.J. (1978), "Some evidence on non-voting models in the spatial theory ofelectoral competition", Public Choice, 33, 83-102.

Hinich, M.J. and W. Pollard (1981), "A new approach to the spatial theory of electoralcompetition," American Journal of Political Science, 18, 323-341.

Hinich, M.J. and M.C. Munger (1990), "Ideology and rational spatial theory", Department of Government, University of Texas.

Lave, L.B. (1987), "Health and safety analysis: information for better decisions",Science, 236, 291-295.

McKelvey, R.D. (1976), "Intransitivities in multidimensional voting models and some

implications for agenda control", Journal ofEconomic Theory, 12, 472-482.

Pappi, F.U. (1990), "Die ideologischen dimensionen des parteiensystems derBundesrepublik im entscheidungsraum des wiihlers von 1987", Institute ofSociology, Christian-Albrechts Universitat zu Kiel.

Theocharis, T. and M. Psimopoulos (1987), "Where science has gone wrong", Nature,329, 595-598.

GREEN LEGISLATIVE POLITICS

Gordon TULLOCKUniversity of Arizona

3.1 INTRODUCTION

There is no place on the whole surface of the earth where human reconstruction of theenvironment has been more thorough than in the Netherlands. This is not said in anyspirit of criticism. I don't want to put the Netherlands back on the sea bottom. As faras I am concerned, benefitting human beings should be our objective. Benefitting otherthings - trees, man-eating tigers, wolves, and so on - is important only in so far ashuman beings will be benefitted by their continued existence. I realize that there are

people who disagree about this and who feel that these other animals, and so on, have

rights. Indeed, the management of Yellowstone National Park in the United States facesa minor but continuing crises because some people object to the shooting of grizzlybears. They apparently feel that the grizzly bears should be permitted to peacefullycontinue eating tourists rather than being murdered.

But although there is this philosophical difference - and I know there are peoplewho disagree with me - the fact is that the government policy will be established bypeople who either are interested in their own well-being or who are interested in naturebecause, for one reason or another, they have preferences with respect to it. As theSupreme Court of the United States on one occasion pointed out, "trees don't vote."The voting is done by human beings and all relevant environmental decisions are, infact, made by human beings in terms of preference functions which either theythemselves have or which are ground out by some collective procedure from a largenumber of human beings. But there is no doubt that human beings, including voters, do,indeed, have feelings about nature and, in many cases, want the natural environmentkept more or less the way it was before there was much human intervention. This isalways simply the natural environment in some limited part of the world, butnevertheless there is some drive to so 'preserve'.

All of this is a rather disjointed survey of the problem. I do want to emphasizethat, in my view, not only is the purpose of environmental improvement to make life

better for human beings, but that, as a matter of fact, human beings will make thedecisions; hence, will make the decisions in terms of their preferences. These

preferences may, using a bit of economic jargon, have the well-being of various wildspecies as arguments, but they are still human preferences.

Environmmenlal Protection: Public or Private Choice, pp. 39-49

40 Tullock

3.2 LEGISLATIVE INTERVENTION

I think most people who do have preferences with respect to environment tend to feelthat improvements in, say, the woodlands of the American West, require governmentaction. This is sometimes true, and I will turn in a few moments to discussing types ofgovernment action which we would like, but let me begin by talking about some caseswhere government action is not only uncalled for, but clearly perverse.

On the eastern slope of the Rocky Mountains in America there is a great dealof natural woodland. As a rough rule of thumb, this wood is of only marginal value aslumber. The trees are small and not of very good quality. These trees are located invery pretty areas where deer, elk, and moose (and formerly timber wolves) are found.Land useful for farming or commercial livestock was brought into that use a century agoand is still being used for that purpose. But there is an immense amount of land whichis not suitable for cattle and in which trees, occasional meadows, and if human beingshave not changed the environment too radically, a large number of deer, elk, beaver,and so on, will be found.

To repeat, it is a very beautiful area but, unfortunately, the area is becomingless beautiful and less suitable for the native animals because of a federal governmentprogram. The American Forest Service motivated by complicated reasons of stupidity,political pressures by a set of rather minor interest groups, conservatism - which meansthat they do not like to change policies once they have gotten started - and the desireto maximize their budget, are arranging to have these trees cut down.

Now I mentioned the fact that the trees are of only marginal value as timber.As a general rule, they are also hard to get to. No private forestry company would thinkof cutting these trees because the cost of building access roads, cutting the trees, takingthem out to the sawmill, and then converting them into lumber is about twice the actualvalue of the lumber.

The Forest Service, at the expense of the taxpayer, builds access roads, whichnot only make it possible to get at the trees but which disturb the natural environmentin quite a large number of ways. They increase sedimentation in creeks and upset thenatural drainage pattern. The Forest Service also provides without charge a number ofservices which would normally be part of the lumber companies' overhead.

The net cost of this subsidy program is of the order of one billion dollars ayear. Once the access roads have been completed, the government auctions the right tocut the lumber. Various, generally speaking, very small lumbering companies locatedin the area bid and then cut the trees. If you count the entire cost - that is, the cost ofbuilding access roads and the other management costs paid for by the Forest Service it costs roughly two dollars for every dollar's worth of lumber that is produced.

Green legislative politics 41

There is a simple solution to this problem which is to give this land! to anyonewho wants it. A private owner would not possibly spend two dollars to get one dollar'sworth of wood so the cutting would stop. This is a case in which privatization of agovernment resource is desirable, not because the private owners would make better useof the resources but because they would make little use and that is better than the ForestService's destructive activities.

In general, this land is worth something only for recreational values. There isso much of it that throwing more on the market probably would not lead to many moredude ranches, and so on, being built. It is true that hunting - and in the United States,hunting is largely a lower-class rather than an upper-class sport - can take a great dealof land because of the fact that the wild species are normally thinly scattered.

For some people who own woodlands, hunting is a source of revenue, and itis, of course, a source of revenue for the states who sell hunting licenses at quite a niceprice. Unfortunately, these hunting licenses do not necessarily permit you to hunt onfederal government property. Those owners of land who are trying to make money outof selling hunting licenses normally do a good job of managing their livestock resourcesjust as do the owners of trout fisheries or grouse moors in England.

There is a relatively new industry in the United States, particularly in thesoutheastern area. Land that formerly bore cotton or some other ordinary farm crop isnow being used to produce trees mainly, although not by any means entirely, for paper.The International Paper Company, which is one of the large operators in this field,regularly sells hunting licenses in a carefully controlled way to people who want to hunton its land and has found that the return from these licenses is quite a significant part

of their profits. It is likely if we just gave this western land away or sold it to thehighest bidder, that the bulk of it would simply become hunting land and I presume thevalue of the licenses would fall quite considerably.

Now I have not said that simply giving this to private owners who will gaintheir utility partly by looking at it and partly by permitting recreational people to makeuse of it, is the ideal thing to do. I have simply said that it is better than the type ofgovernment management that we have right now. In passing, I should point out that notonly would the land be in better shape, but the taxpayer would not find this particularcost added on to the indebtedness that his great-grandsons will have to pay.

Another possible way of dealing with this problem would be to turn it over tothe states or local governments which, in general, handle these things better than thefederal government. This is not because they handle them well, but because they do nothave enough money to engage in the kind of activity that I have been describing.

1 Or better yet, sell it. But I do not imagine you would get much money for it.

42 Tullock

The basic point of the above discussion is that I want to point out thatenvironmental problems are not simply dealt with by transferring control from privateto public hands. This is a case in which one of the easiest ways of dealing with thisparticular environmental problem is transferring control from public to private hands.There are others.

Let me give another example also drawn from the western part of the UnitedStates, and, specifically, that part under the control of the federal government, notnecessarily entirely the Forest Service because the National Park Service and the Bureauof Land Management are also involved. Ever since the formation of an effective oilcartel by OPEC, the problem of the real or the potential monopoly exploitation ofAmerican consumers by foreign oil producers has been at the front of the attention ofa great many Americans. One way of dealing with this, of course, would be to increaseAmerican oil production facilities. It is unfortunately true that the bulk of the placeswhich seem most promising from the standpoint of oil exploration are barred to suchexploration. The reason is largely environmental pressure organized by a set of pressuregroups.

Many of these pressure groups, Audubon Society, Nature Conservancy, and forthat matter, the Sierra Club, own land of their own which they are preserving. The totalamount of this land is, of course, small compared to the federal holdings, butnevertheless there is a good deal of it. These same organizations that press so vigorouslyagainst the federal government permitting drilling on its land (or water) are normallyperfectly willing to permit oil companies to drill exploratory wells, and then, if theyfind oil or gas, development wells on their own property. Normally, of course, theyenter into rather elaborate contracts under which the oil companies will do their best tominimize environmental damage. In fact, oil and gas drilling and later development isnot a particularly environmentally damaging activity although, of course, it does notleave the environment completely unharmed.

Why the difference? I think the answer is simple and straightforward. If thereis drilling on some land owned by the Sierra Club, the Sierra Club's land has itsenvironment to some extent - usually rather minor extent - damaged. On the other hand,there is a very substantial royalty payment to the Sierra Club. The management of theClub comparing these two items, will not infrequently - not always, but not infrequently- agree that the oil company can drill.

But consider the situation if it is government land. The damage to theenvironment will occur but the royalties will not go to the Sierra Club, they will go intomiscellaneous receipts in Washington. It is not in any way surprising that the SierraClub would take a totally different attitude toward this kind of oil exploration than itdoes to oil exploration on its own land. It is a case in which the costs and benefits of


the drilling are internalized on the Audubon Society organizational land and they makea sensible economic balancing off the cost and benefit. When it is government land,they see the cost but they know that the benefit goes elsewhere.

As appears from these examples, the basic problem with environmental matters- and once again may I remind you that my objective is to benefit human beings, nottrees, rocks and man-eating tigers - is that the costs and benefits of the activity to someextent fallon different people. In the first example, the Federal Government owns theland and the bureaucrats who make the decisions obtain only some of the benefits fromthe decisions and pay only a small part of the costs. That they tend to make bad use ofthe resources is not surprising. In the second example the interests of nature preservationand oil exploration appear to be compatible as soon as the preservist pressure groups aregiven a stake in the oil revenues.

In general, if the cost and benefits can somehow or another be made to fallonthe same person or organization, the decision on utilization and resources and will bemuch more sensibly made than if the costs and benefits are separated. Sometimes,however, this requires public intervention rather than abstention.

3.3 MEANS OF LEGISLATIVE INTERVENTION

Regulatory taxation

When it comes to the internalization of pollution and environmental costs in a politicalbody the main problem is that no one really has the right incentives. Let us go back toone of the earliest discussions of this subject. In the 1920s, Pigou wrote about a factorywith a smoking chimney and the housewives who lived around the factory who, thisbeing the Twenties, left their clothes out to dry (pigou, 1920). The smoke dirtied theirclothes. Pigou - once again, writing in the Twenties - did not think at all about possiblehealth effects.

He pointed out quite properly that the factory owner did not have the rightincentive to reduce smoke because the cost of the dirty laundry fell on other people.Pigou's solution to this was a tax on the factory owner equivalent to the cost inflictedon the housewives, thus giving him the appropriate incentives. Fundamentally, this isnot a bad idea although economists since Pigou have found a large number of technicalflaws in the details. It requires something a good deal more complex than Pigouimagined to actually solve the problem perfectly. Nevertheless, it is clear that anappropriate tax would greatly improve the situation.

But is there any reason to believe that such an appropriate tax would beimposed? The factory owner presumably would prefer no tax at all, but the householderswould presumably prefer a tax which in the first place completely eliminated dirt on

44 Tullock

their clothes, but secondly, which transferred from the factory owner to them as generaltaxpayers as much money as was possible.

Politically, in the particular problem that Pigou gave - that is, a factory alreadyin existence and apparently no concern about the building of new factories by otherentrepreneurs - I think there is no doubt that the voting housewives would win in ademocracy and the owner of the factory would find that a large part of his capital valuehad been taken. In the real world, fortunately, things are more complicated. Mostcommunities are interested not only in the factories they now have, but in attractingmore and are aware of the fact that their environmental regulations have an affect.

If I may tum again to Tucson - which in this case is completely ordinary - thecity is interested in improving its environment and one of the ways it wants to improvethe environment is to get more industry there so that there will be more jobs, morecustomers for the merchants, and so on.

We have had an interesting political change recently. A very conservative manwho had been mayor for many years retired and his replacement turns out to be amember of the left, a professor from my university. In dealing with this problem, whichboth of them thought was one of the most important problems in Tucson, the formermayor used to talk about the need to attract new industry and the need to see to it thatindustry does not in any way damage our environment. The new mayor talks about theneed to see that the new industry does not in any way damage our environment and theneed to attract new industry. If there is any difference in their actual decisions, I havenot been able to detect it.

This is normal and one should point out that in terms of environment, it is,indeed, true that the existence of more jobs, more customers, and so on, is part of theenvironmental affect of the factory. For a long time, we economists have tended to referto such things as "merely pecuniary" and disregard them. For many purposes, that isappropriate. Nevertheless, the average person does not take that attitude.

These are situations where the market is unlikely to make good decisionsbecause the costs and benefits do not fall naturally on the same people. Now it shouldbe said that if we can change the situation so that the costs and benefits do fallon thesame people, then the market solution is apt to be very good if not completely optimal.This was, of course, Pigou's idea in taxing the factory with a smoking chimney. Theproblem at a purely technical level is that it is not always easy to do this. Nevertheless,I think that Pigou was on the right track.

RegulationIn the mid-seventies Professor Buchanan and I wrote an article in which we argued thatthe legislature's tendency to impose specific regulations with the regulations falling


much more heavily on new plants than old, was readily understandable(Buchanan/Tullock, 1975). They were attempting to compensate the producers for thecosts of the environmental regulation by giving them some monopoly power. Theeconomists' favorite solution - which is imposing a special tax on the pollution - wouldmean that the whole cost of reducing pollution would fallon the factory owner. Thebenefit of the increase in price, which would come from the rise in cost, would begained entirely by the government. The regulation technique transfers at least part ofthis monopoly gain to the owner of the plant as compensation for his reduction in thepollution emission.

The basic problem with government regulations is, first, the governmentnormally does not know very much about the particular area where it is engaging in theregulation; hence, frequently chooses non-optimal methods. It may simply imposeregulation which is far more expensive for some factories to comply with than others.The same reduction in pollution could be obtained by permitting some factories to emitmore pollution and the others less at markedly lower costs. Indeed, in the United States,to some limited extent the companies are permitted to make this kind of trade betweendifferent sources.

More important here, however, is the type of political pressure that is apt tobe important. I earlier mentioned that the housewives around Pigou's factory wouldprobably try to transfer funds to them. Let me give you a fairly famous case from recentAmerican experience. It has to do with the efforts to reduce the amount of sulfurdioxide released by the chimneys of those of our electric generating plants that usecoal.2 In general, there are two techniques that could be used to reduce sulfur dioxide,one of which is to employ very elaborate and expensive scrubbing mechanisms, and theother is the use of low sulfur coal. The old American coal industry - which exists in thedensely populated East where most of the electric generating plants exist and most ofthe people suffering from air pollution live - produces high sulfur coal. There is,however, in the West, a newly developing industry producing coal with a low sulfurcontent.

The Sierra Club, which is primarily located in the West and which,unfortunately, owns none of the land upon which the coal is found3, objects to thefurther development of mining in the West. Eastern coal miners, mine owners in the

2 It is an interesting fact that the most pollution-free known method of generating electricity is touse atomic energy. The environmentalists for reasons having nothing whatsoever to do with environmentare strongly opposed to this.

3 In general, the land is, in fact, not particularly beautiful and it makes up only an insignificantportion of the West.

46 Tullock

East, and the miners union which has few members in the West, also object. As a

matter of fact, environmental damage by mining in the East is much more significant

than in the West, so a true-blue environmentalist would have been strongly in favor of

the switching to low sulfur coal.

Needless to say, that it not what happened. The coal miners union, the coal

mine owners, and Sierra Club got together and put pressure on Congress. Congress

enacted a set of legislation which, in essence, requires the companies to use scrubbing

techniques. This is an absolutely clear-cut case of government behavior which obtained

a highly non-optimal outcome for reasons having to do simply with the kind of thing

that we expect in governments.

The problem here is that the private owner will normally ignore externalities

falling on other people. The government takes these externalities into account but

frequently does so very ineptly. Further, the government is apt to generate its own

externalities as in the case of the tree cutting. In general, the government is apt to make

fewer mistakes and handle the matter better if it is possible to allocate it to a lower level

of government rather than the central government. As I drive to work in the morning,

I impose considerable costs on other people by the exhaust of my car and by, for that

matter, congestion on the highway. While this is going on, the other 600,000 members

of the population of Tucson are reciprocating by doing the same for me. Now, all of

these drivers are citizens of either Tucson or Pima County (the county in which Tucson

lies). There is therefore an entity which internalizes both the benefits and the costs of

this driving. Since it does internalize both the benefits and the costs, it is quite possible

that the present arrangements properly offsets them. Certainly, although we do have air

pollution, it is not very bad and our congestion is also modest compared with LosAngeles.

Unfortunately, in many cases of pollution, the entire pollution area does not liewithin a local government area. Like many counties in the American West, Pima

County consists of a rather large city in the center and then barren near desert going outfor many many miles. Air pollution here can be fully internalized by the local

government, but that wouldn't be true for Amsterdam.

Tradeable permits

I have discussed the direct tax which is, I suspect, the most common economic

recommendation for these things, but there is another method invented by Professor

Dales, a Canadian economist, which is the so-called tradeable permit (Dales, 1968).

This provides better incentives for the government and quite good incentives for the

individual companies. Generally speaking, Professor Dales suggests that we make the

decision as to how much of some particular pollution can be permitted and this decision


can be specialized, that is, one could say that they will have a permit for so muchrelease of pollution in some specific area rather than in the whole United States or theworld. These permits would then be freely tradeable. If I had a factory in which itwould be very expensive to reduce pollution, I could buy permits from another factorywhere a reduction of pollution was cheap. The result would be that whatever was chosenas the optimal amount of pollution would be achieved at a minimum cost. To repeat,a very limited program of this sort does now exist in the United States and generalizingit would be desirable.

Let us temporarily assume that these permits are simply given to the existingpollution sources; for example, suppose we decide that pollution should be cut in half.We give to each pollution source a permit for half of its present level of pollution andthey can then transfer them among themselves in terms of the various costs of reducingpollution until they reach an equilibrium.

This system would provide the companies at least some compensation for theadditional costs that they would run. A new entrant, for example, would have to buypermits from the existing people and assuming that he pays a competitive price, thiswould to a considerable extent compensate the existing industry for their necessarycapital investment. Thus, in a way, it does - not perfectly, but to a considerable extent -compensate the people who are injured by the regulation.

On the other hand, if it is done in this very simple way, the voters would have

no real motive to exploit the producers and, in fact, would have no possibility of doingso. No revenue would be derived by the voters. They might, of course, choose too lowa level of pollution, but they would not make any direct gain in a cash sense from it.

Suppose, once again, that we have decided how much pollution we want andhave drawn up the appropriate number of pollution permits. Instead of giving them tothe current sources of pollution, we distribute them to the poor or give them to theuniversities as an endowment or set up a series of prizes for economists who havehelped in the pollution control problem such as myself, each one receiving some largecollection of permits to pollute. These people can then use the pollution permits in thesense that they either sell or rent them to companies. The capital value of the permitswould be quite sizeable.

It would be noted that here we have in a way a privatization of the pollutioncontrol activity. But although it is a privatization in the particular sense that someprivate person comes to own a certain quantity of the use of the air as a waste dump,it is more accurately described as factoring out a government function rather than as trueprivatization.

As you know, one of the things that can be done with most government

activities is to arrange to have them put under a contract of one sort or another. For a

48 Tullock

long time the lighthouses in England were put up by private persons who were permittedto charge a tax on every ship entering a particular harbor. Whether we like this or not,it is quite different from providing true private ownership. The pollution permits wouldbe this kind of factoring out government activity rather than truly private marketsolution, even though they would be sold in a private market.

So far, in general, I have discussed mainly air pollution. Water pollution is asomewhat more difficult problem, although not a ghastly difficult problem, because asa rough rule of thumb, each river or water course requires somewhat differenttreatment. Further, of course, in Europe the rivers very commonly pass through severalnations; hence, some kind of international agreement to control them would bedesirable. It should perhaps be said that if we are talking about pollution of rivers, itis generally true that the municipal waste plants are the major sources of such pollutionand not private industry. This is not because private industry is highly virtuous indealing with water but because, as a matter of fact, it does not generate as much wasteas a large number of households.

The fact that it is the municipal governments that are involved makes the wholething particularly painful because they normally have more political clout than dofactories. In consequence, it is harder to get them under control and, in the UnitedStates, the federal government in dealing with the very large rivers like the Mississippiwhich passes through many local government areas has found it necessary to actuallypay for development of large scale sewage control facilities rather than simply orderingthe local governments to clean up.

This program, which has not worked out very well, is politically moresignificant with the large communities than the small. I am indirectly connected with asmall town of 3,000 inhabitants in Iowa, and I know that the federal government indealing with them simply threatens to force them to stop using their city water andsewer system if they do not clean up. The federal government would not dare do thatkind of thing with New York or Los Angeles.

Although the rivers are a difficult problem, there is no reason that the methodsI have just described could not be used. Dales' pollution permits could be used. Onceagain, a very large part of them, if they were distributed to existing sources ofpollution, would go to municipal governments rather than to private businesses. It wouldalso, as before, be possible to give these permits to the poor and then force themunicipalities to buy them if you felt like helping the poor. In other words, theprocedures for reducing water pollution are much like those for air pollution.

This proposal to distribute the pollution permits to the current polluters annoyssome people. They are mainly people who just dislike industry, and, in particular, thoseindustries which generate various forms of air and water pollution, want to be nasty to


them. I do not share these goals. But I should say that the pollution permit procedureis very flexible and if you want, you can be quite nasty to the polluters in that you makethem not only reduce the amount of pollution but pay through the nose for the pollution

that they do generate.

3.4 CONCLUSION

Having read so far, you may think that it is not all that definite and concrete. I regretto say that is true. The problem that we have here is one in which the market does notwork very well. Indeed, in some cases, the market can be said to not work at all. On

the other hand, the government both by experience and by theoretical expectations alsodoes not work very well. The choice between the market and the government institutionshere usually will fallon the side of the government but we must not expect too much

from it.

Altogether, the end product is that pollution control is a very difficult problem

and that we can do better than we are doing right now, but we should not have utopiandreams.

REFERENCFS

Buchanan, I.H. and G. Tullock (1975), "Polluters' profits and political response: directcontrols versus taxes", American Economic Review, 65,139-147.

Dales, I.H. (1968), Pollution, propeny and prices, University of Toronto Press,Toronto.

Pigou, A.C. (1920), The economics of welfare, MacMillan, London.

REGULATION OR TAXATION

Jules THEEUWESUniversity of Leiden

4.1 INTRODUCTION

In their 1975 seminal American Economic Review article Buchanan and Tullock offered

an interesting explanation for a paradox in environmental policy. Theoretical economic

analysis of negative externalities at that time was adamant about the optimality of

regulatory taxes or 'Pigovian fees' as providing the proper incentives for reduction of

polluting activities to a socially acceptable level. However, in practice politicians and

bureaucrats charged with doing something about environmental problems quite often

favoured direct 'command-and-control' instruments involving explicit limitations on

allowable levels of pollution or for the use of specified abatement techniques. Who was

wrong here: economists or politicians? Neither, was what Buchanan and Tullock showed

in their paper. The answer was simply that polluters' profits were usually higher in the

direct regulation case and hence it was in their interest to put pressure on the politicians

to work with regulatory rather than price instruments. Their public choice argument

could explain away the apparent contradiction between the efficient policy and the

politically acceptable policy. They concluded that: "observed quotas reflect the political

power of regulatees" (Buchanan/Tullock, 1975, p. 983).Even today direct regulation with command and control instruments occurs

quite frequently in environmental policies (Nentjes, 1990). But there are changes. The

Dutch national environmental plan includes a consideration of financial instruments

(Sociaal Economische Raad, 1990), whereas environmental lobby groups are stronglypushing the idea of putting a price on pollution (Landelijk Milieu Overleg, 1990). How

would we approach today the apparent conflict between theory and policy in the policy

choice between direct controls and effluent fees, which was central in the Buchanan

Tullock analysis? Answering this question is what this paper sets out to do.

The answer consists of two parts. First of all economists are less clear cut about

the optimality of Pigovian fees in all circumstances. As I read them a shin is occurring

among environmental specialists towards a preference for a policy whereby the environ

mental agency sets standards and issues permits that allow these standards to be reached.

A permit gives a polluter the right to pollute. These permits could be bought and sold

on a permit market. The market price for a permit would, in the ideal case, reflect the

Environmental Protection: Public or Private Choice. pp. 51-fi9

52 Theeuwes

social opportunity cost of pollution. So first of all a comparison has to be made between

fees and tradeable permits. The latter option was not yet in the picture at the time

Buchanan and Tullock wrote their article.Fees and tradeable permits are policies that make the polluter pay a price. It

can be proven that these policies are Pareto efficient under the appropriate convexityconditions. However the existence of negative externalities might itself create nonconvexities and hence there is a theoretical case to be made against environmentalpricing policies. Furthermore, there are practical circumstances, such as emergencysituations and calamities, in which direct commands and controls work faster and moreeffectively than fees or permits. Furthermore there remain doubts in the minds ofpolicy-makers as to the effectiveness of financial incentives because of the uncertaintyof behavioral reactions. In contrast, controls and commands would seem to operate moredirectly.

Since the days of Buchanan and Tullock the theory of environmental policy hasbecome much more diversified and much less clear cut. The only theoretical verdict thathas stood up for all this time is against subsidizing polluters or rewarding them for goodpollution behaviour. This policy has always been frowned upon theoretically.

In Section 4.2. I plan to briefly summarise the modern theory of environmentalpolicy and I present theoretical arguments pertaining to the choice between Pigovian feesand tradeable permits. Next, in Section 4.3. I will review the practical and normative(least-cost) arguments for and against a policy with effluent fees or with tradeablepermits. In the same Section I will briefly discuss the appropriateness of directcommand and controls by the environmental agency in dire circumstances.

Having established that the theoretical optimality or the practical relevance ofenvironmental policies depend on exogenous conditions such as uncertainty, imperfectinformation, monitoring costs, etc., and having concluded that among economists thereis still a strong preference for using economic incentives to regulate the environmenteither with a fee or with tradeable permits the question that Buchanan and Tullocktackled is as intriguing as ever. It is still relevant to analyze why, in cases wherePigovian fees or tradeable permits are efficient, politicians still resort to otherinstruments such as direct command instruments specifying allowable levels ofemissionsor the use of a specific abatement technique. This would seem to be a matter of who insociety benefits or suffers from pollution and its solutions. A preliminary analysis ofwinners and losers in this respect is made in Section 4.3. Section 4.4. concludes.

Regulation or taxation

4.2 FEES VERSUS PERMITS: THE THEORETICAL ARGUMENTS

53

There is more to the contemporaneous economic theory ofenvironmental regulation than

Pigovian fees. Apart from these fees, there exist a set of instruments, viz.:regulation of allowable levels of emissions;prescription of specific abatement techniques;contributions to public purification or filtering plants;subsidies for pollution abatement;deposits for damaging materials;systems of tradeable emission permits.

These instruments can be reduced to three basic forms: a financial or price instrument(fees, subsidies, contributions), a regulatory or command instrument (allowable levels,specific techniques, deposits) and a quantity instrument (number of tradeable permits).Tradeable permits will eventually carry a market price. The difference with fees beingthat the policy maker does not have to worry about the correct 'price' level, but ratherabout the number of permits to be brought onto the market. The permit price is thenestablished on the permit market. So, ultimately, permits also work through a financialincentive. It can be proven that, in situations of full information, no uncertainty and acompetitive setting of fees and permits are equally efficient.

About the same time that Buchanan-Tullock published their public choice paperexplaining political preferences for controls over fees, Weitzman published his justlyfamous 'Prices vs Quantities' paper (1974). A planning agency can use either 'price' or'quantity' instruments to achieve its desired outcome. Whether the 'price' or the'quantity' instrument is better depends on the particular forms of uncertainty. Dependingon the shapes of the marginal social benefit and abatement cost functions, theenvironmental authority will be better advised under some circumstances to use one ofthem, and under other circumstances to employ the other. In this section we will firstdeal with the perfect case of full information and no uncertainty, which we will call 'thePigou case' and then discuss the theoretical issues of fees versus permits in a less perfectenvironment ('the Weitzman case').

The theoretical results in these theoretical discussions rely very heavily onnicely behaved convex production and preference sets. It turns out that environmentalexternalities, as they have a direct effect on the production possibilities of the economy,can easily cause non-convexities. Non-convexity completely and drastically changes alltheoretical results. More specifically, relying on the market mechanism as is necessarywith effluent fees or with pollution permits, might give unexpected and undesirableresults. It is just possible that in those cases the regulatory instruments are better. Thenon-convexity case is discussed at the end of this theoretical section.

54 Theeuwes

The Pigou case

For a neo-classical economist environmental pollution is a prime example of marketfailure. The perfect competitive free market economy, in which individual consumersmaximise their individual utility or welfare levels and private firms maximise theirprivate profits given market prices for all goods and services will, under idealconditions, reach a Pareto optimal social welfare position. This social welfare propertyof the free market economy is the exact analytical analogue of Adam Smith's intuitivenotion about the blessing of the invisible hand in an economy where agents are onlyconcerned about private welfare. Environmental pollution, however, requires concernabout the welfare of others and hence prevents the attainment of an optimal socialposition in a free market. In this sense the free market fails.

Environmental pollution is a negative externality as it has a detrimental effecton the production and consumption possibilities of other economic agents and thepolluter does not compensate for this welfare reduction. For instance, an upstreamchemical firm polluting an important waterway with non-degradable waste will forcedownstream producers and consumers to use extra resources to clean and filter the waterbefore they can use it for production and consumption purposes.

The polluter does not pay them for these extra resources. Consequently, whenthe upstream polluter decides on his optimal production level, he does not take accountof the downstream damage which he cause as a 'by-product' of his production and henceproduces 'too much' pollutant from a social point of view. This is even more clearlyseen if we assume for a moment that the upstream polluter were to take over thedownstream firms. In that case he would obviously be hurt by the damage his upstreamplant is causing for his own downstream plant and now he will take that into accountwhen deciding about his upstream production. Note that he is still unconcerned aboutthe damage he might cause to the consumers further along the stream.

Hopefully this example makes it intuitively clear what the best solution is to thenegative externality caused by environmental pollution: the polluter should be chargedfor the damage he is causing to the consumers and other producers. How much he hasto be charged can be derived from the necessary conditions to achieve Pareto optimalityin a perfectly competitive economy with negative externalities.

Assume for concreteness that the k producers in a perfectly competitiveeconomy emit an amount of 'smoke' SI; into the air and that the total amount of 'smoke'z=EI; SI; causes disutility for each of the j households in the economy and resourcelosses for the producers. Then it can be shown that a market economy can still achieve

Regulation or taxation 55

Pareto optimality if polluters are charged a fee t, per unit of 'smoke' which is equal

to:'

(1)

where the first part of the right hand side is equal to the weighted sum of the marginal

disutilities (negative numbers) caused by the total amount of smoke z to each individualhousehold (u J is the utility function of household j). The second part is the weightedsum of the marginal resource costs caused by z to each individual firm (fl: is theproduction function of firm k). The weights tl.J and PI: are Lagrangian multipliers.What Equation (1) tells us is that the tax rate per unit of smoke emissions, or thePigovian fee as it is called, in honour of the inventor of this solution, should be equalto the marginal social damage of smoke.

To gain a little more insight into this tax rate or fee one can use the necessary

conditions for Pareto optimality with respect to a resource such as leisure/labour,

denoted as good i, that is used by every household and every firm, solve for the

Lagrangian multipliers in (l) and rewrite as:

(2)

Now the first term between brackets on the right hand side is equal to the marginalamount of leisure that each household j would need to compensate for the utility lossdue to pollution z. The second term is the amount of work needed to offset the loss ofoutput due to z. Both these leisure and work time losses are evaluated at the shadowprice of leisurellabour, the going wage rate wj ' In (2) the per unit fee is equal to thevalue of the marginal amount of time that has to be spend to bring households and firmsback to the original welfare position before pollution.

An implicit result in this analysis that is interesting enough to bring out in theopen explicitly is that efficiency in the Pareto sense does not require any compensationfor the victims of pollution. Efficiency is achieved by taxing each firm with a tax ratet,

per unit of pollution. This leaves open the political matter of whether low income

I Proof of this assertion and of most other assertions in the text can be found in 8&umol and Oates(1988).

56 1heeuwes

groups should be compensated for the loss of income due to the price increases that willcome forward as a result of this pollution tax. But those are subsidies for equity reasons,

not efficiency (we come back to this problem in Section 4.4).In the analysis it is also assumed that firms 'contribute' equally to the marginal

social damage when they emit a unit of 'smoke'. Obviously the marginal damage canbe different for different polluters, e.g. a polluter in the crowded Randstad2 mightcause more social damage than a polluter in a rural area. In that case the tax rate shoulddiffer according to damage caused and might, for instance, be set higher for a Randstadpolluter than elsewhere.

The analysis also holds for 'congestion' problems. Congestion is caused byconsumers or producers exploiting a limited resource e.g. fishermen on the North Sea,cars in the peak hour traffic. To follow up on the latter example: each car that joinsrush hour traffic adds to the traffic congestion and causes negative effects for other rushhour traffic users. As long as the private benefit of joining rush hour traffic is largerthan the private cost from overcrowding, drivers will join peak hour traffic withouttaking account of the effect on others. A solution to this crowding problem is to chargeeach car driver for the marginal social damages that he causes by joining the rush hour.A Pigovian fine for all participants in the rush hour traffic would be a solution, assuggested by Equations (1) or (2).

The Weitzman caseWhen all is perfect there is no efficiency difference between using a Pigovian fee perunit of emission or a system of tradeable or transferable emission permits. In the lattercase the regulatory authority has to determine the desirable aggregate quantity of wasteemissions, issue a number of permits for that quantity and let market forces determinethe price per unit of emission permitted. If all is well the market price for a unit ofemission permitted will be equal to the Pigovian fee. This can be clearly seen inFigure 1.

2 The Dutch name for the coasta1 conurbation reaching from Amsterdam in the north to Rotterdamin the south of the country.


fM

oFigure 1 The equivalence of fees and permit prices

100 % emission reduction

On the horizontal axis we measure emission reduction. Somewhere to the right

emission reduction will be 100%, say, and the air will be completely clean. The curve

MB is the marginal social benefit of reduction of emissions curve and the curve MC is

the marginal cost of abatement curve. The first units of emission reduction are assumed

to create high marginal social benefits of reduction at relative low marginal cost of

abatement. Further abatement can only take place at increasing marginal cost and yielddiminishing marginal benefit. For convenience we have made both schedules linear.

The social optimal level of emissions reduction is obviously the point at which

MB = MC. If the environmental agency knows both lines perfectly it can either impose

a charge of f* (the Pigovian fee) per unit of reduction or issue permits for 100% - q*

units of emissions.

If the agency sets a fee equal to f* then polluters will reduce emissions to level

q*. To the left of q* the marginal costs of abatement are lower than the tax rate f*,

hence one will reduce emissions and avoid having to pay f*. To the right of q* the

marginal costs of abatement are higher than the fee f*. Hence one will take the taxinstead of reducing emissions any further.

In the permit case the agency 'supplies' the community of polluters withpollution rights equal to 100% - q*. The 'demand' for pollution rights and the price one

would be willing to pay for each unit is given by the curve MC. Hence the 'equilibrium

price' that will be established on the market for pollution rights will be equal to f*.

Ultimately it makes no difference to a polluter whether he has to pay a fee of

f* to the governmental agency or a price of f* to a private seller of permits on the

permit market. Note also that, in this perfect information case, the governmental agency

maximises social welfare, defined as the difference between the total social cost of

58 1heeuwes

abatement and the total social benefit which is the area between the two marginal curves

in Figure 1.

The situation will be completely different if there is uncertainty or lack ofinformation about the exact position of the marginal benefit or the marginal cost curve.Uncertainty about the position of the marginal cost curve is particularly important. Aswas explained above, in the fee case firms look for the intersection of the fee level withthe marginal cost curve to determine optimal q. In the permit case the price of thepollution right is determined by the intersection of the vertical 'supply' curve of permitswith the marginal cost curve. Hence uncertainty about the cost curve will be crucial.

Assume that we can write the linear MB curve as:

MB(q) = a - bq(3)

where a and b are positive constants. Similarly we write the linear Me curve, adding

a stochastic term II as:

MC(q) = w + vq + II (4)

where w and v are also positive constants.

The environmental agency wants to select the optimal f* or q* that maximisesthe expected value of the social welfare W = MB(q) - MC(q). It can be proven that inthis case the following holds:

(5)

Equation (5) tells us that in this simple case Pigovian fees will give a higher social

welfare if v > b. The parameter v is the slope of the marginal cost curve and b is theslope of the marginal benefit curve. If marginal costs of additional pollution abatementincrease faster than marginal benefits decrease (in absolute terms) then theenvironmental agency should use effluent fees rather than permits. If marginal benefitsdecrease faster, i.e if b > c holds, the permit system will on average lead to highersocial welfare. The variance of the error term E( 112 ) affects only the difference between


the welfare yields of the two policies. Obviously if there is no uncertainty (and hencethis variance is equal to zero) both policies yield the same welfare.

The non-convexity caseAn important result in welfare theory is that if appropriate concavity-eonvexityassumptions hold (these relate to the second order conditions on production possibilityand preference sets) then there exists a market equilibrium at equilibrium prices whichis unique (it is a global maximum), it maximises the value of output and at the sametime maximizes social welfare (i.e. it is Pareto optimal).

This can best be seen in Figure 2a which shows a nicely concave productionpossibility frontier IT' for a two-good economy (goods y 'electricity' and x 'laundry')and defines a set of nicely convex social indifference curves 10, II and 12, Theseindifference curves are level sets belonging to a social welfare function. Along thesecurves the level of social welfare is held constant. Under these conditions a price vector

PP' can be found that is tangent to both the production possibility curve and the highestpossible social indifference curve. This occurs at point E. This line PP' allows the

market economy to decentralise production decisions and consumptions decisions. Withgiven price vector PP' producers will maximise profit and consumers will maximiseutility and the economy will end up in the optimal point E. This point is a socialmaximum situation: it is the point where the highest possible social indifference curveis still tangent to the production possibility frontier of the economy. At the same timeit is the point where the value of output is at its maximum: it is the point where the linePP' is just tangent to the production possibility curve.

y

T

uL.-lrlQI

p'

x laundry

Figure 2a Pareto optimum and competitive equilibrium

60 1heeuwes

I,p'

y

UL...UQIQ)

This equivalence of the competitive equilibrium and Pareto optimality is what

was exploited in deriving the policy prescription of using Pigovian fees or permit prices

to achieve Pareto optimality using the decentralised free market mechanism in aneconomy with detrimental externalities. What Pigovian fees or permit prices achieve will

be illustrated in a very simple way in Figure 2b.

,p",

""p" ,

x laundryFigure 2b Pigovian fee and Pareto optimality

Here I assume that without environmental policies the economy gets stuck in

point F on the production possibility frontier with price line P"P'''. This point is not

on the highest possible social indifference curve. In this sense welfare improvements arepossible toward point E. It is clear, comparing points F and E, that in point F too muchof good y is produced and too little of good x. If the production of y, say electricity,creates 'smoke' that pollutes and hinders the production of x, say laundry, then aPigovian fee or payment for a permit would increase the unit cost and hence the priceof electricity. This would reduce the slope of the price line. For an environmentallycorrect price ratio the price line would become PP' in Figure 2b and with these'corrected' prices the market economy would end up in the social optimal point E.

This interesting result depends completely on the curvature of the productionpossibility frontier and the social indifference curves. It turns out, however, thatextensive detrimental externalities can completely change the form of the productionpossibility frontier of the economy. The concave form of the production possibility isbased on the assumption of a diminishing marginal rate of transformation. What isbehind this assumption can be made clear by walking along the production frontierstarting from point T in either Figure 2a or 2b. In point T all economic resources are


used to produce only good y (electricity). Starting from T in the direction of T' whatwe do is shift production factors from the production of y (electricity) to the productionof x (laundry). We are transforming the economy from a pure electricity economy (onlyy is produced) to an economy in which increasingly more laundry and less electricityis produced. We assume that initially this transformation is very rewarding, in the sensethat shifting resources from electricity to laundry 'buys' relatively large increases in thelaundry production for only relatively small decreases in electricity production. As wemove along the frontier however toward more and more laundry production thistransformation becomes less and less interesting. The 'gains' made in terms of morelaundry get smaller and smaller for each additional reduction of electricity production.This process of decreasing rates of transformation for each additional shift is preciselywhat leads to concavity in the production frontier. Obviously the same type of reasoningholds on going from a laundry economy (point T') to an electricity economy (point T).

We now introduce a negative external effect from electricity on laundryproduction and start from the pure laundry economy (point T'). As we start shiftingresources from laundry production to electricity production two things happen to laundryproduction. First of all laundry production decreases as resources are taken away (thisis the process described before) but if the production of electricity is detrimental tolaundry production there is an additional reduction in laundry production. If thisexternality effect is rather strong then the production possibility frontier might collapseinward and we will end up with a convex production possibility frontier, as in Figure2c.3

y

o'-oQ)

Q)

,,,,,"-

"-,"-"-,

"-" p'

H x laundry

Figure 2c Perverse results of Pigovian fees

) To avoid confusion: the production possibility curve has a convex curvature. The productionpossibility set however is non-eonvex. It has 'spikes' at T and T'.

62 1heeuwes

In Figure 2c the social optimal point is still E (tangency of highest social indifference

curve and the production frontier). The correct price vector (including Pigovian fees orpayments for permits as in Figure 2b) is PP'. The decentralised market system with thisprice vector will tend to the point of maximum value of production. In Figure 2c themaximum production value is in point G (for another slope in the price line it couldhave been point H). Point G happens to be the point where the economy produces onlyelectricity and no laundry. This would be a very perverse effect of environmentalpolicy.

The point of these examples should be that when the nice curvature propertiesare lost, one cannot count on the working of the price mechanism to achieve socialoptimal results. Both the Pigovian fee instrument and tradeable permits rely on the pricemechanism to achieve desirable results. Both might lead to unexpected and unintendedresults if the economy in non-convex. The sad twist in all this is that the very existenceof detrimental environmental effects will be an important source of these non

convexities. In the non-convex case one presumably would have to look for otherenvironmental policies, such as direct regulations, to force the economy into the sociallydesirable situation.

4.3 TIlE DESIGN OF ENVIRONMENTAL POLICY

What we have learned from the foregoing discussion is first of all that Pigovian fees arenot as much a theoretically clear-cut case as they used to be. With uncertainty aboutmarginal costs the choice between fees and permits is not always straightforward.Secondly, and even more damaging, with non-convexities both fees and permits mightgive undesirable results.

In this section I will compare fees and permits on a more practical level andconclude that on this account permits would seem to be a slight favorite. I will alsodiscuss briefly the practical merits or demerits ofother environmental policy instrumentssuch as direct controls and subsidies to polluters.

Looking back at Equations (I) and (2) for the determination of the Paretooptimal level of the Pigovian fee one realizes quite quickly that one needs an immense

amount of information in order to calculate the optimal effluent charge t.. Theenvironmental agency needs information on the net marginal damage caused by

emissions to probably thousands if not millions of firms and households. This is anhorrendous task in terms of sheer numbers of agents involved.

Furthermore some types of damage will be very hard to quantify in monetaryterms, for instance, think about aesthetic damage to the physical environment. Whatmakes it even more of an impossible mission is that one has to calculate the value of t.


corresponding to the damage caused by pollution when the level of pollution will beprecisely at the optimal level we are aiming for. Hence it is not the social damage thatwe are observing at present but the damage once we are in the optimal situation that isimportant for our calculations. Hence we are talking about evaluating the quantity ofsomething that is outside our present realm of observation.

The task that is put before the environmental agency in calculating the Paretooptimal fee structure is comparable to the problems that a central planning agency hasto solve in a planned economy. In a famous historical discussion about the viability ofa planned economy the Austrians Mises and Hayek stressed the impossible informationalrequirements of a planned economy. The practical application of fees in environmentalpolicy will also be an informational impossibility.

Besides, relying on governmental agencies to correct the market failure that isinherent in environmental externalities is only sensible if one can guarantee that theseagencies are really interested in achieving the normative goal of Pareto optimality in themarket economy. Public choice theory suggests that this is not obvious and thatenvironmental agencies might be more interested in maximising their budget or theiroutput. In that case there would be a 'government failure' on top of a 'market failure'.

Least-cost solutionsIs there a way out of this horrendous information problem? Not completely, but we canmake some headway if we are prepared to be satisfied with something less than optimal,if we are willing to 'satisfice' rather than 'optimize'. What the environmental agencyshould start with is the selection of a set of environmental standards, e.g. about themaximum allowable percentage of sulfur dioxide in the atmosphere, about the maximumallowable noise level (in decibels) in a residential area, etc. Although the agency mightbe guided by scientific reports on the detrimental effects of different levels ofconcentration of pollutants the determination of standards will always remain in somesense arbitrary. One could imagine that it is the task of parliament, or another politicalbody, to set these environmental standards in a politically acceptable way.

These environmental standards might not be set at the optimal level, but inaccepting this we have reduced the informational requirements of an environmentalpolicy enormously. My hunch is that the resources we save by not gathering thenecessary information for optimal fee levels might far outweigh the resource loss wesuffer in not deriving the optimal solution. Having set these standard the two policiesthat we discussed before - Pigovian fees and tradeable permits - come into play onceagain. It can be proven that a set of effluent fees and a properly designed permit systemboth possess the least-cost property, i.e. they can both achieve the environmentalstandards at minimum social cost. The proof is rather simple and relies on the

64 1heeuwes

assumption that polluters are cost minimizers. The fee acts as a price for pollution andthe price of a permit is an opportunity cost for pollution. Both policies lead to a 'price'that the cost minimizer take into account when making his production decisions.

Note that the assumption of cost minimization does not require perfectcompetition. A monopolist or oligopolist will also minimize cost. Cost minimizationimplies that the standards approach, with a fee or tradeable permits, will in any caseachieve efficiency without necessarily achieving optimality.

If under certainty both fees and permits are equally efficient in terms of beingleast-eost solutions, then what considerations would be relevant to choose between themin practice? Here is a list of practical arguments for and against fees and permits.

Fees versus permits

First of all fees are uncertain as to their effect. Fees rely for their beneficial effects onthe reactions on the side of the polluters to change their cost and production structure:change inputs, reduce output levels, invest in abatement, etc. in response to the fee.These behavioral reactions are not always perfectly known to the environmental agency.Also they take time to introduce and execute.

So when initially setting its fee structure the agency might have to guess whatthe strength of the reactions will be. If it overestimates the reaction coefficient, it setsits fees too low, if it underestimates, then fees will be too high. So it might have toiterate in order to find the correct fee structure. This interaction process will not onlytake a lot of time but will also be politically frustrating as the private sector will havelimited patience with what looks like a wavering environmental agency.

In the case of permits the agency issues permits corresponding to theenvironmental standard it wants to achieve, and it lets the flexible permit price systemdo all the adjustment. In that case the anonymous market forces do the job rather thanthe politically visible agency. Note, however, that the functioning of a market forpermits is not without transaction costs either. Buyers and sellers have to 'find' eachother and bargain about the permit price. Unless good institutions (a permit exchange)can develop, there might be high search and bargaining costs (i.e. transaction costs) inthe market for permits.

Second, fees will always be eroded by inflation and the agency has to adjustthem regularly if inflation runs high. The price of tradeable fees will rise with thegeneral price level in the market economy. This is, I guess, only a minor disadvantageof fees.

Third, if pollution is not uniform across the nation it might be necessary toregionally differentiate fees or have regionally different prices for permits. For tradeablepermits clever systems (basically different numbers of permits for different regions) can


be developed that structure the market for permits in such a way that regionally differentprices will be generated by market forces. The environmental agency setting nonuniform fees across the nation might run into lots of protest from producers who thinkthey are treated 'unfairly' compared with producers in other regions. Regionalauthorities will be protesting against making industry and business location in theirregion more expensive because of higher pollution fees.

Fourth, one of the main arguments against fees is that they add to the costs ofproduction, hence they will reduce profits or increase losses and in the worst case evenclose down certain production plants as they become non-profitable. For efficiencyreasons this might indeed be the result we are aiming for, but it will nevertheless behard to swallow in practice and will run into many problems from the producer's side.This argument was fully exploited in the Buchanan and Tullock article mentioned at thebeginning of this chapter. Permits, on the other hand, when they have to be paid for,are a cost factor too, but there is one big difference with fees which has to do with theinitial distribution of permits. If the agency so desires it can distribute the permits for'free' among the polluters. If this initial distribution is already close to what is theefficient distribution, firms only have to sell and buy marginal numbers of permits andhence this will not have much influence on the cost structure of individual firms.

Finally, something good can also be said about fees. Fees are a 'nice' tax inthe sense that they are a tax on an undesirable activity (rather than on a desirableactivity such as a wage tax on work) and the tax revenues of this 'green tax' are to thebenefit of society, which could be seen as the ultimate proprietor of the environment.

What we end up with is very much a playing down of the advantage ofPigovian fees and the system of tradeable permits seems to be a more attractiveinstrument on many counts.

SubsidiesPigovian fees are always better than subsidies for polluters. At first sight one wouldexpect fees (= taxes) and subsidies to be mirror images of each other and ifappropriately structured they should have the same economic effects. It does not seemto matter whether we induce good behaviour from the polluter with a stick (fees) orwith a carrot (subsidies). And indeed, at first glance this economic intuition lookscorrect. Let me define, for argument's sake, subsidies as a unit rate of subsidy (y) foreach unit of pollution s that the polluter remains below some fixed benchmark level ofpollution s*:

66

total subsidy = y(s· - s) = ys· - ys

Theeuwes

(6)

As can easily be seen from Equation (6) the subsidy can be written as consisting of two

parts: a lump sum part (ys·) and a 'tax' part (-ys). By definition lump sums do not

have an influence on marginal decisions (marginal costs and benefits are not affected byit). In this respect a subsidy and a fee are equivalent. However lump sums are of theutmost importance for the position of the average cost curve and might mean the

difference between shut down and continuation of the firm. The lump sum part in the

subsidy scheme favours continuation of production and even stimulates entry into the

sector.These entry effects can be so strong as to result in having even more pollution

in the end than before the subsidy program was set up. Each individual firm within the

sector will pollute less than before, but there will be a lot more firms in the sector. Sosubsidies are clearly out from an economic point of view, although they will obviously

be a big favorite of the business sector. 4

Direct controls

The only thing that I have not discussed yet is direct controls (regulation).5 The use of

direct controls is not a least cost solution. Direct controls do not give any leeway to

firms to adjust or to react. With a fee structure or a permit price the cost structure canbe adjusted to incorporate substitutes that become profitable with the new price vector.

With a fee structure or a permit price there is also a dynamic incentive to invest in

technological improvements in pollution abatement techniques or in less pollutingproduction methods. With direct controls there is no incentive to adjust in the short orthe long run and hence in principle direct controls can be very costly for society. Theyshould be used only sparingly, in very specific circumstances. The appropriatecircumstances for controls are calamities.

If, through meteorological changes, catastrophic events or other stochasticshocks an emerging situation suddenly develops, then neither the effluent fee system nor

the permit market will be flexible enough to react fast enough to this emergency. In thatcase only direct controls are quick and effective.

4 The Dutch national environmental plans (NMP and NMP-plus) carry a substantial amount ofenvironmental subsidies, mostly for public transportation and agriculture (see Nentjes, 1m, p. ISO).

S To be complete I should add that I have not mentioned the use of collective purification, filteringor waste removal installations (e.g. for drinking water, or a sewer system) rather than private pollutionabatement systems because they are cheaper due to scale effects (decreasing average costs).


A similar argument that is sometimes used against the use of fees and pennit

prices and in favour of direct controls is that the effect of the fonner is more uncertainthan the latter because it works in an indirect way, i.e. it has to rely on the behavioral

reaction of households and finns to a financial incentive.6 In economic tenns I would

translate this argument as saying that price incentives are less powerful if priceelasticities are small.

This is the economic argument for direct controls. The public choice argumentmade by Buchanan and Tullock (1975) remains valid. Direct controls limit productionand create higher prices in the same way a cartel would do and hence will in this sensebenefit the business society.

4.4 WINNERS AND WSERS

Presumably environmental quality is a normal good, hence for the same price the richwill ask for more environmental protection or a higher quality environment than thepoor. The rich will be willing to spend more on environmental quality in residential andrecreational areas.

Environmental quality is a public good. It can either be a pure public good (inthe sense that nobody can escape 'consuming' it) or it can be a local public good (in thesense that people can avoid it by what Tiebout called voting or choosing with their feet(Tiebout, 1956). In the pure public good case consumption of environmental quality is

by definition the same for everybody. The rich consume the same as the poor. Theappropriate level of a public good is usually set in a political process. By majority

voting, for instance. In the relatively simple world of the median voter hypothesis thiswould imply that the level of environmental quality as a pure public good would be sethalfway between the poorest member of society and the richest. The poor people wouldthen have too much environmental protection and the rich too little. The latter wouldclearly be willing to pay for more environmental quality. Increasing the environmentalquality further would always benefit the rich but not the poor.

If environmental quality is of the local public good type than this will bereflected e.g. in housing prices. Houses located in a heavily polluted area (close tosmokestack factories, close to airports) will be cheaper than houses in pollution free

areas where the environmental quality will be capitalized into residential values. Thehousing prices will reflect the quality of the local environment. Households will 'votewith their feet' and the poor will end up in the cheap but polluted housing area, whereas

6 Nentjes (1990, p. 153), cites the Dutch ministry responsible for the environment as taking such aposition in the past.

68 17u!euwes

the rich live in the clean but expensive areas. For a given income distribution this is an

efficient solution: the marginal rates of substitution of expenditure on environmental

quality versus expenditure on other goods will be equalized across income classes. If theenvironmental agency now introduces a quality improvement in the slum areas where

the poor live, than after some time the residential values will start to increase, possibly

resulting in a driving out of the poor from this area if they can no longer afford the

increased rent or are bought out by developers trying make a profit on the increasedproperty values. All this is not necessarily a welfare improvement for the poor.

Environmental policies also have effects on the labour market. If a stricterenvironmental policy is instituted then it will reduce production and hence will causereduction in employment. Usually white collar and professional workers have a better

chance of finding alternative jobs in a relatively short period, whereas blue collar and

less skilled workers might remain out of work for a long time. If no assistance is

provided, the poor will suffer more than the rich in this respect, too.

Finally the imposition of Pigovian fees or having to pay for pollution permits

will increase product prices. It is hard to predict what the effect of these relative price

changes will be on the purchasing power of the poor versus the rich. One needscomputable general equilibrium models to get some idea of what might be the result.

The few computations that have been done suggest that again the poor suffer more thanthe rich. The goods and services that are 'taxed' by the environmental measures figuremore predominantly in their expenditures than in the expenditures of the rich.

4.5 CONCLUSIONS

Reviewing the matter of Pigovian fees and tradeable permits from a theoretical point of

view, recent developments tell us that the case is not as clear cut as it used to be. It isnot necessarily a fact that Pigovian fees are always the best possible solution. It mighteven be the case (with non-convexities) that both fees and permits lead to undesirableenvironmental results. Hence theoretical economists will see a case for not usingPigovian taxes or permit prices. This, I guess, is an important theoretical developmentsince Buchanan and Tullock wrote their article.

Next, from a practical point of view it would seem that tradeable permits havea lot going for them. Hence one would expect them to be used much more in designing

environmental policies. That is, if practical economists have their way. It remains,

however, a basic fact of life that some sections of the economy benefit more from

certain policies (e.g. firms benefit from subsidies; the rich benefit more than the poor

from environmental policies in general) so there will always be political pressure from

their comers to push the policies in their direction.

Regulation or taxation

REFERENCES

69

Baumol, W.J. and W.E. Oates (1988), The Theory ofEnvironmental Policy, 2nd ed.,

Cambridge University Press, Cambridge.

Buchanan, J.M. and G. Tullock (1975), "Polluters' Profits and Political Response:

Direct Control Versus Taxes", American Economic Review, 65, 139-147.

Buchanan, J.M. and G. Tullock (1976), "Polluters' Profits and Political Response:

Direct Control Versus Taxes: Reply", American Economic Review, 66, 983

984.

Landelijk Milieu Overleg (1990), Financille instrumenten voor het NederlandseMilieubeleid, A. Nentjes and J.L. de Vries (oos)., Utrecht.

Nentjes, A. (1990), Economische Instrumenten in het Milieubeleid? Financierings- ofSturingsmiddel?, Preadviezen van de Koninklijke Vereniging voor de

Staathuishoudkunde 1990, 145-166, Stenfert Kroese, Leiden/Antwerpen.

Sociaal Economische Raad (1990), Nationaal Milieubeleidsplan Plus, The Hague.

Tiebout, Ch. (1956), "The pure theory of local expenditure", Journal of PoliticalEconomy, 64, 416-424.

Weitzman, M.L. (1974), "Prices vs. Quantities", The Review of Economic Studies,XLI, 477-491.

DECISION MAKING ABOUT THE ENVIRONMENf:THE ROLE OF INFORMATION

Frans VAN DUKUniversity of Amsterdam

5.1 INTRODUCTION

The recent upsurge of concern about the environment is partly a result of the visibledegradation of our surroundings. But an even more important role in raising awarenessis played by information. In particular, new information about worldwide issues likeclimate change and ozone depletion, as well as about local problems like dioxinepollution, is essential in this respect. The strategic presentation of such issues in theBrundtland report and follow-up reports published in some countries magnified the

impact. In the seventies the Limits to Growth report (Club of Rome) played a similarcatalytic role. The effects of new information reflect the basic uncertainties underlyingmany environmental issues. These uncertainties diminish only gradually in the courseof time, as more and more information becomes available from experience and research.

Basically, uncertainty has two roots. First, uncertainty results from chance.Chance events occur in physical, biological, and in economic processes. Examples inthe field ofeconomics are technological progress and discoveries of raw materials. Also,even within a rational actor framework, chance may play some role in human behaviorand social and political interaction. Energy price fluctuations induced by political eventsare a case in point. In general, this cause of uncertainty cannot be remedied and has to

be taken into account, when designing any policy. When only uncertainty of this kindexists, all potential outcomes of a process and their probabilities are known. Second,uncertainty is caused by incomplete information. This kind of uncertainty leads tosituations in which the potential outcomes and probabilities of a process are to someextent unknown. To a certain degree this uncertainty can be eliminated, but this willconsume time and resources. Although uncertainty permeates all policy fields,environmental policy, in particular, seems subject to both sources of uncertainty. Thesize and probability of events which may result from pollution are often unknown. Yet,uncertainty relates not only to the extent of the environmental problems, but also to the

response of the private sector to these problems and the effects of the instrumentsgovernment may want to use.

Environmental Prolection: Public or Private Choice, pp. 71-87

72 Van Dijk

Uncertainty caused by incomplete information has an important impact ondecision making. While chance requires that decision makers define a desired level ofrisk aversion, lack of information fundamentally changes the decision making process.Costly search strategies are required. Consequently, adjustment to changing externalconditions will be slow and partial, as compared to a situation of complete information.This is so even when only a single decision maker is involved. In the context ofpoliticallbureaucratic decision making, adjustment is further slowed down by the needto reach a workable consensus first. Perceptions of uncertainty may vary widely and,before substantive action is possible, may need to be shared by some majority. Furthermore, it has been argued, that incomplete information and the associated cost ofacquiring information could lead to non-voting in elections and also to influential lobbies(Downs, 1957). Under certain conditions, these processes slow down decision makingyet further.

This chapter discusses the consequences of informational uncertainty fordecision making about environmental policy. The chapter consists of two parts. InSections 2-5 the uncertainties that environmental policy makers are facing will bediscussed, and Sections 6-11 discusses their consequences for decision making. The firstpart starts with a discussion of uncertainties about the nature and gravity of environmental problems. The likely response of the private sector is then addressed. Thisresponse forms a source of uncertainty for decision makers in the public sector. Next,uncertainties regarding targets and instruments are discussed. The second part beginswith the case of a single decision maker and then describes decision making with manyactors being involved. Section II summarizes the conclusions.

S.2 UNCERTAINTY ABOUT ENVIRONMENTAL PROBLEMS

Environmental problems differ in scale (from worldwide to local) and in effect (fromimmediate danger to human health to the long term rise of the sea level). Theseproblems can generally be defined by the following elements:a. levels of pollution resulting from autonomous economic and technological develop-

ment;

b. effects of pollution at these levels;c. maximum acceptable levels of pollution at which the effects are tolerable.An assessment of these elements is often fraught with uncertainty due to chance andincomplete information.

Ad a. Present levels of pollution can be measured directly. Yet, even hereuncertainty exists in some cases, for instance when pollutants are already dangerous inextremely small concentrations (e.g. dioxine). Evidently, the prediction of future levels

Decision making about the environment: the role ofexpectation 73

of pollution is more complicated. The first step is a forecast of economic activity, which

then has to be translated into pollution levels. Important factors, like energy prices andtechnological development, exhibit stochastic uncertainty. Furthermore, a complicatingaspect of many environmental problems is the cumulation of pollutants over time. Thisadds to uncertainty, not only because of complex physical processes, which are difficultto predict, but also because the absorption of pollutants is influenced by human action(e.g. deforestation which influences CO2 absorption). These effects strengthen thedependence of future pollution levels on current ones. Figure 1 may serve as a simpleillustration. Suppose, with regard to future pollution of a certain type, that at time t=Oall trajectories between the lines indicated by p and q are seen as possible and that theactual outcomes also fall within these boundaries. Then potential trajectories at t= 1depend on the actual situation at t= 1 (compare positions PI and ql)' While uncertaintydue to incomplete information is likely to decrease when measured at a fixed point intime (for instance at t=2), it does not need to decrease when measured at a fixed termfrom the present (compare angles ho and hI)' In the latter sense it may even increase.

Ad b and c. The effects of actual and future pollution are subject to furtheruncertainties. These uncertainties also apply to the levels of pollution at which effectsare just tolerable. Adaptability of species (including man) and ecosystems, for example,introduce stochastic elements. However, this inherent uncertainty is overshadowed bythe lack of information about the mechanisms at work. A few observations mayillustrate this point. I

Over the years research has focused on the effects of individual pollutants on humanhealth. Nevertheless, much uncertainty still exists about safe exposure levels and formany pollutants these levels have been gradually reduced over time.Much less is known about the combined effect of different pollutants on health. Inpractice, this problem is often dealt with by an arbitrary increase of safety marginsincluded in standards for individual pollutants.Effects on ecosystems are still harder to assess. Maximum levels of pollution atwhich the survival of a system is still guaranteed are generally unknown.Worldwide environmental problems and, in particular, climate change have receivedmuch research attention in recent years. Reports of the Intergovernmental Panel onClimate Change (1990) indicate that the assessment of the effects is extremelycomplicated. The prediction of the temperature increase is subject to a largeuncertainty range. And the impact of this increase can only be indicated qualitatively. Also, maximum acceptable levels of emissions are not known.

I Tweede Kamer 1988-1989. 21137. or. 5, ·Omgaan met risico's·. This policy paper deals with riskanalysis and environmental policy. See also H. Vollenbergh (1989).

74 Van Dijk

A gradual decline of this informational uncertainty will result from research.Theoretically, in the long run only uncertainty resulting from chance would remain. Asmentioned above, experience indicates that maximum acceptable levels ofpollution oftentum out to be lower than had previously been expected. Figure 2 summarizes thisschematically. Perceived uncertainty ranges are indicated for each point in time. At t=0the uncertainty range is 3o-bo, while at t=2 it might be, for instance, a2-~ or ~-d2. Thefirst possibility reflects a neutral decline of uncertainty and the second the more likely

case, that a decrease of uncertainty results in lower safe levels of pollution. It is

assumed that at t=2 complete information is achieved. At that point only stochasticuncertainty remains, which is supposed to be constant.

pollution

o

Figure J: poUulion allime t. asexpecled all =0 and I =I

2 t

maximumacceptablepollution

o

IIIII

I II I______ ..1 __ -----1"--

10

2

Figure 2: perceived maximum acceptablelevels of poUulion al time I


The perceived need for adjustment follows from the confrontation of theexpected pollution (Figure 1) with the perceived, maximum acceptable level (Figure 2).An unequivocal case for adjustment exists only if, for any point in time expectedpollution is higher than the maximum acceptable level for all points of the uncertaintyranges of both variables. At present, this seems not to be the case for many pollutants.Figures 1 and 2 reflect such less straightforward situations. When at t=O expectedfuture pollution is evaluated against the present perception of maximum acceptablepollution (ao-bo in Figure 2), then only from t= 1 does the possibility exist that theupper boundary (ao) of the uncertainty range is exceded. Remedial measures could thusaim at taking effect as from t= I. However, in the course of time perceptions ofmaximum acceptable pollution are revised and damage is expected to occur earlier andat lower levels of pollution. Consequently, measures have to be intensified and theyhave to take effect earlier. A last point to note is that, when the critical level ofpollution is exceded (for example at PI in Figure I), the probability that the economywill return to safe levels without remedial action is zero.

5.3 UNCERTAINTY ABOUT PRIVATE SECTOR RESPONSE

Government intervention is complementary to spontaneous adjustment of the privatesector. Hence decision makers in the public sector have to assess the voluntary responseof the producers and consumers to the problems discussed in Section 2. Marketadjustments to changing prices are already included in that analysis. The likelihood offurther adaptation is now examined in order to discover whether this response adds animportant element of uncertainty.

With regard to the willingness of consumers to incur the extra costs of ecologically sound behavior, the following aspects are particularly important.1. Information: information exerts an influence on the decisions of consumers.

Environmental agencies within the public sector supply such information throughtheir publicity campaigns. The activities of environmental pressure groups are alsoimportant.

2. Preferences: the value attached to a clean environment as compared to moreconsumption goods and employment opportunities will affect behavior. The attitudetowards risk is also an important determining factor.

3. Marginality of positive effects: the familiar argument against the private provisionof a public good, such as a clean environment, is that a rational consumer isdiscouraged to do so by unrecognizable (marginal and uncertain) positive effects onthe environment and real costs. This would be the case, even when his preferencesare strongly influenced by the deterioration of the environment and he would vote

76 Van Dijk

in elections in favour of a green party. However, it should be noted that the

empirical literature on free riding and n-person prisoner games seems to indicate

that at least under certain conditions the willingness to contribute to the formation

of public goods is not altogether absent (StroebelFrey, 1981).

4. Moral aspects: narrowly defined rationality can be overruled by moral considerati

ons. Broadly supported pressure groups may reinforce this moral aspect by stressing

the enormity of life endangering behavior. In any specific situation, an element of

chance is introduced; for instance by the emergence of opinion-leaders in favor of

or against these moral arguments.

While the above aspects also influence producer behavior, other aspects are

likely to be more important.

1. Competition: producers are inclined to adopt only those measures that yield a

positive result in monetary terms; other measures are relegated by the need for

(international) competitiveness.

2. Expectations: in spite of the above argument, further measures could be induced by

expectations. Producers may expect a gradual tightening of emission or product

standards at the national or international level. It would be rational to anticipate

these in new investments. Producers may also want to forestall government

intervention by pre-emptive measures.

3. Marketing strategy: clean products and clean production processes can be used as

a marketing strategy.

4. Negative publicity: companies may want to avoid a negative image resulting from

confrontations with environmental pressure groups.

The arguments against further voluntary adjustment are likely to dominate. Stillsome response has to be reckoned with. The extent of such a response is hard to predict,due to lack of specific knowledge about the behavioral factors mentioned above. If

further voluntary adjustment can be disregarded with certainty, expected pollution

remains as depicted in Figure 1. If some response is likely, a limited downward rotationof the uncertainty range will occur, probably accompanied by a widening of the range.

5.4 UNCERTAINTY ABOUT TARGETS OF ENVIRONMENTAL POLICY

If the voluntary adjustment of the private sector is not expected to be sufficient for the

solution of an environmental problem, public sector decision makers have to design

concrete policies. These policies consist of targets and instruments. The targets can

either be expressed as maximum pollution levels or as minimum pollution reduction

levels at some future point in time. The determination of targets requires a detailed

analysis of the problem as illustrated in Figures 1 and 2 and of private sector response


for each relevant pollutant. Ideally, for different target levels the probability and extentof the damage caused by the remaining pollution is assessed. Consequently, these targetlevels will be subject to all the uncertainties described earlier.

5.5 UNCERTAINTY ABOUT INSTRUMENTS OF ENVIRONMENTALPOLICY

Present policies to reduce the pollution generated by the private sector are mainly basedon direct regulation. Since experience with this instrument is not very encouraging,interest in other instruments is increasing. However, these other instruments have oftennot yet been developed beyond theoretical proposals. In this situation uncertainty causedby incomplete information prevails, while some uncertainty due to chance has also tobe reckoned with. Important elements of uncertainty are the following.I. Feasibility: the technological and institutional feasibility of new instruments is often

uncertain: for instance, taxation of industrial emissions is at present subject totechnological constraints. It is uncertain whether and when these technologicalproblems can be solved in a cost-effective way. The compatibility of the impositionof pollution levies on a large scale with the basic principles of the tax system isanother example.

2. Effectiveness: instruments differ with regard to the likelihood that they will meettheir objectives. Apart from the enforcement problems discussed below, the effectsof direct regulation are less uncertain than those of indirect instruments that aim atproviding incentives, like charges and subsidies. Clearly, the impact of direct

regulation depends less on behavioral reactions and on stochastic fluctuations thanthe impact of financial instruments. Regulatory taxes may be neutralized by pricechanges. A tax on energy consumption, which is under discussion in many countries, is particularly vulnerable to this kind of uncertainty. Behavioral response maybe much less subject to chance, but is complex and needs empirical investigationin each specific case. Thus, the information requirements for the successful implementation of such instruments are extensive. At present these can only be partiallyfullfilled.

3. Enforcement: the ability to enforce instruments is very uncertain (Cachet/Koolhaas,1990). The success of instruments depends crucially on the acceptance of themeasures by those to whom they are addressed, but also by others involved, likelocal authorities charged with implementing the measures (see Section 7). In the

case of direct regulation, non-eompliance by producers and consumers has receivedmuch attention (Buchanan/Tullock, 1975). Such behavior may occur as a result ofa rational evaluation of costs and benefits. If there are many small polluters, none

78 Van Dijk

of them has an incentive to stick to the rules voluntarily. In many cases, thedisincentive flowing from the neglectable positive effects and substantial costs ofindividual adjustment is not overruled by moral considerations. The widespreadviolation of speed limits in the Netherlands is a case in point. In such a situationcompliance depends on the risk of being penalized, which is often marginal. Aprincipal-agent-problem, which is characterized by the inability of government tofully monitor all actions of polluters, is the result (Arrow, 1986). Furthermore, thelegal system is put under heavy strain. Note, however, that the same reasoningapplies to other instruments. Evidently, regulatory taxes, like other taxes, aresubject to free riding behavior and require strict enforcement.

4. The effects of instruments on the economic system: assessments of the macroeconomic effects of environmental policy differ considerably. This reflectsinformational as well as stochastic uncertainty. Uncertainty results, among otherfactors, from the policies pursued by other nations. If these countries take similarmeasures, the effects of environmental policy on a country's economy are minimized. If not, relocation of production to other countries increases the impact on theeconomy. Even assuming that all national governments act rationally and theirbehavior is in principle predictable, accurate prediction of policies founder on lackof information. Some response strategies to this kind uncertainty will be addressedin Section 10.

It seems quite safe to conclude that at present the choice of instrument is a major areaof uncertainty.

5.6 PUBLIC CHOICE UNDER UNCERTAINTY: THE CASE OF A SINGLEDECISION MAKER

When confronted with an environmental problem, a decision maker will proceedstepwise, as the information available is insufficient to address all elements of hisdecision problem simultaneously. In general, he will determine successively:1. the need for government intervention. This decision will be based on:

a. the available information about the environmental problem;b. the likely response of the private sector;c. his preferences regarding risk-aversion in particular.

2. initial targets based on further research and analysis of these factors.3. definitive targets and instruments based on an analysis of instruments and their

effects.This procedure will be iterative, as more information about the different elements of thedecision problem gradually becomes available through experience and research.

Decision making about the environment: the rok ofexpectation 79

The actual choice of targets and instruments depends above all on the attitudeof the decision maker towards uncertainty and risk. Two extreme options are

conceivable (OECD, 1990).I. If he is little risk-averse and has a short time horizon, he could set low targets for

the reduction of pollution and implement only those instruments that do not imposesubstantial costs on the private as well as the public sector. This option could alsoreflect an optimistic assessment of the urgency of the environmental problem, thepace of technological progress or the voluntary adjustment by the private sector. If

this assessment were to come true, minimum costs would be incurred. But shouldthis not happen, it may prove impossible to avoid the transgression of maximumacceptable levels of pollution for some (probably long) period of time. This wouldcause damage and incur costs for remedial measures. Targets will also have to beraised drastically. It is likely that these measures cannot be smoothly absorbed bythe economy. Shock-wise change in economic activity could then occur.2 Anexample at a micro-level is the handling of air pollution in cities. If few measuresare taken to reduce emissions structurally, discontinuous interventions like thehalting of traffic and the closing down of industries is necessary in smog alarmperiods. Stringent but costly measures aiming at the quick reduction of emissionscould forestall any need for such disruptive measures.

2. The other extreme option consists of the adoption of high reduction targets and theimposition of instruments to fully reach these targets. Extreme costs may be avoidedin this way. Yet the enforcement of the necessary far-reaching instruments couldbecome a bottleneck and might endanger the efficacy of such a policy. Under less

unfavourable external conditions, the adopted targets will prove to be unnecessarilyhigh and costly.

S.7 PUBLIC CHOICE UNDER UNCERTAINTY: mE CASE OF MANY

ACTORS

While the behavior of a single decision-maker might be relatively predictable, the actualresponse of the public sector is a different matter. The public sector consists of acomplex set of actors who pursue their own objectives and who interact with each otherand with agents in the private sector, such as pressure groups.

2 See also: F. van Dijk and P. Nijkamp (1980). They discuss the possibilities of continuous anddiscontinuous development, in relation to the level of resistance to change on a macro-level.

80 Van Dijk

Actors in the public sector are:politicians and political parties at central, local and intermediate levels of government;bureaucrats and bureaucracies in different departments and at different levels ofgovernment. As to different departments, a distinction between environmentalagencies and other agencies involved is sufficient here. The other agencies includethe departments of economics and finance, but also more specialized (parts of) suchdepartments as agriculture.

The objectives of these actors differ. They also have to take account of variouscircumstances. Consequently, conflicts of interest are inevitable. The following conflictshave an important impact on decision making:I. Between politicians at the same level of government and within the same political

party: these conflicts reflect, for instance, unreconciled objectives pursued bypoliticians with loyalties towards different groups of supporters.

2. Between incumbent politicians at different levels of government: such conflicts canbe of an ideological nature, especially when different parties hold office. Anexample of a controversy that is often determined by ideological considerations isthe assessment of the voluntary response of the private sector to environmentalproblems. Different weights attached to environmental policy may also reflect party

programs. Specific local circumstances, like unemployment, could lead to divergingweights as well, even when politicians of the same parties hold office. Also,conflicts may be caused by the unequal distribution of the effects of environmentalpolicy over regions. As a result, the balance of costs and benefits of certainmeasures may well be positive for the whole of the economy, but negative for somespecific regions. These conflicts are particularly important when local authoritiesare charged by the central goverment with the implementation of instruments andhave discretionary power in the execution of these tasks. The issue of emissionpermits is a case in point.

3. Between politicians and bureaucrats at the same level of government: the objectivesof the bureaucrats differ from those of the politicians. The objectives of the formerreflect the limited tasks of their departments or agencies, while the latter eventuallyhave to reconcile all objectives, especially in the legislative process. Resourceallocation, budget and manpower, is also a source of conflict. In these conflicts thepolitical executives of the agencies involved playa dual role, as they tend to adopttheir agencies' objectives, but also have to remain within their party programs.

4. Between bureaucrats at the same level of goverment: diverging objectives andcompetition for resources lead to conflicts. As a result of the small scope of the


objectives of many agencies and their strong relations with clients and lobbygroups, these conflicts often exhibit a sharp edge.

S.8 STRATEGIES OF DIFFERENT ACTORS

All actors involved will pursue strategies to further their objectives. These differingstrategies are discussed here for the actors operating at the level of the central government. At other levels similar strategies will be used. For each group of actors adistinction is drawn between electoral and legislative strategies.

Strategies or politiciansApart from small 'green' parties, the political parties will tend to ignore environmentalissues, unless concern about these issues is widespread among the population. Only thenwill the state of the environment reach the political agenda3 and evolve into an electoralissue. Otherwise, the risk of losing the votes of those who bear the brunt of unsolicitedenvironmental policy without gaining other votes is too high. Given the many uncertainties that have been mentioned, the consequences and the costs of environmental policyare largely unknown at the time the environment becomes an electoral issue. Hence,election programmes are likely to contain inconsistent objectives (for instance, economicversus environmental objectives).

After having made the environment an electoral issue and being elected on a'green ticket', incumbent politicians have an incentive to deal seriously with theirpromises in the legislative process. Their reliability and thus their survival in futureelections are at stake (Downs, 1957). However, they will not do this at all costs. Ifcosts of not realizing other objectives or otherwise alienating important groups of votersare high enough, it can be rational to lower aims or even drop the issue altogether.Preferably this will be done in such a way that election promises can be said to befulfilled. Voter myopia may increase the scope for deviations from promises. Thus whenconcrete targets and instruments are to be established and the costs become visible, newchoices will be made.

Strategies or bureaucrats: the environmental agenciesThe environmental agencies will permanently seek opportunities to put the issue on thepolitical agenda. New information offers such opportunities. The agencies will act inconcert with the environmental lobbies, which are often subsidized by them. If

successful, popular concern is raised and politicians have to take up the matter.

) Regarding the issue of agenda determination, see: P. Bachrach and M.S. Baratz (1962).

82 Van Dijk

Simultaneous developments in other countries strengthen this process. In environmentalpolicy the role of bureaucrats is particularly important, since pollution does notgenerally result in immediate and observable damage to citizens, who could seekrecourse through the political process.

In the legislative process the agencies will push for the full implementation ofelection promises. They will aim at high targets and full imposition of necessaryinstruments. Using electoral momentum, they will put pressure on other agencies to'green up' their programs. They will try to increase their budgets and staff. Underconditions of uncertainty regarding primary targets, resource maximization could wellbecome an independent objective. This behavior is not only rational from the personalpoint of view of bureaucrats who seek to improve their status and influence, but alsofrom the perspective of the objectives of the agencies. Strategically, these resources canbe used to increase research and extension programs, which could further strengthenpublic concern. At this stage the principal means of influencing decision making is thesupply of information to the political decision makers. But information is also used to

focus the attention of the media and the public on environmental issues. This helps tocreate a favourable atmosphere for far-reaching decisions. In practice, non-official useof information to put further pressure on decision makers can also be observed. Thisincludes both the leaking of information to lobby groups and press and the withholdingof information.

Strategies or bureaucrats: the other agencies involvedAlthough the other agencies might also try to influence public opinion at an early stage,they generally adopt a reactive stance and do not get involved until the legislative stage.Their strategies will aim at cost-minimization for their clients. They may also want to

prevent interference with their own objectives. The often less than enthusiastic attitudeof tax authorities towards regulatory taxation and other fiscal instruments illustrates thelast point. Their aim to contain or reduce the complexity of the tax-system is not servedby new taxation. These agencies further their objectives in much the same way as theenvironmental agencies do. They present their own assessments of the potential effectsand probabilities of pollution as well as the consequences of targets and instruments.They will try to influence public opinion too and may resort to the manipulation ofinformation in turn. The deliberate blocking of research on specific instruments can beadded to the examples given above.

Decision making about the environment: the role ofexpectation

S.9 THE POLICY CYCLE

83

The interaction of the strategies described above results in the following stylized policycycle.I. The environmental agencies and pressure groups attempt to raise public concern

about the state of the environment by providing information.2. When concern is widespread, the issue is taken up by politicians and political

parties, and becomes an electoral issue.3. After elections, concrete targets and instruments have to be established. An

information battle ensues between the environmental agencies and the otheragencies. Politicians and bureaucrats at other levels of goverment get involved. Atthis stage different lobby groups will be active. These groups provide informationon the need for drastic measures and apply pressure. Lobby organizations ofproducers (industry, agriculture, transport, etc.) inform the political decision makersabout the consequences and acceptability of measures. Some consumer organizations(for instance: the car lobby) may also voice opposition. During this process moreinformation becomes available about the effects and costs associated with the targetsand instruments contemplated. Also, the acceptability of these measures to differentgroups in society becomes clearer. At this stage the environmental agencies and theenvironmental pressure groups are probably less effective than the opposingagencies and the producer lobbies. It has often been suggested (in particular byOlson, 1965) that lobbies of small groups are more effective than those of largegroups. This implies that producer organizations are more influential than broadlybased organizations of consumers or citizens. This has also been argued by Downsand Lindblom among others (Downs, 1957; Lindblom, 1980). Consequently, theenvironmental lobbies would be relatively weak. This also translates itself into arelatively weak position of the environmental agencies.

4. On the basis of this new information, the political decision makers make newchoices. Probably they will not fully adopt the measures envisaged in their electionplatforms. The decisions taken will tend to reflect low risk aversion with regard to

the environment (option I in Section 6). If costs and resistance are large enough,it is even conceivable that the whole issue is dropped from the political agenda andno action is taken at all. A cyclical pattern could then arise, especially if theenvironmental problems worsen. Information about a worsening situation providesenvironmental agencies and lobbies with a chance to raise popular concern again.This pattern can be observed in practice. After the widespread attention forenvironmental issues in the seventies as a result of the "Limits to Growth" report,the environment more or less disappeared from the political agenda, until the recent

84 Van Dijk

wave of new information and attention occurred. As a result, valuable time andopportunities for gradual adaptation have been lost. As an environmental problembecomes more serious, it is less and less likely that it will be completely droppedfrom the agenda. Some form of policy will be adopted (see the next section). Still,a cyclical pattern in political attention is probable. New information enables theenvironmental agencies to raise public concern again in order to shift governmentpriorities further in favour of the proposed policy. This could continue until asituation of complete information is approached.

5.10 SHORT TERM LEGISLATIVE POLICY UNDER UNCERTAINTY

As described above, incumbent politicians and parties in power may be tempted to dropthe issue from the political agenda. Yet, as the problem worsens, it becomes moreopportune to uphold election promises. Other strategies become attractive. These havein common the imposition of cost-effective measures on the private sector and anemphasis on further study and research. The following strategies can be observed inpractice, often at the same time for different environmental issues.4

a. Decisions on targets and instruments are postponed with the argument that notenough information is available, but a research program is started.

b. Targets and instruments are then only implemented when this also happens in othercountries, because an international approach is more effective, less costly and moredefensible. This strategy could lead to general inactivity. However, it can beexpected that countries that will particularly suffer from a specific environmentalproblem will take initiatives to reach international consensus on policy measures(this might explain the Dutch preoccupation with climate change).

c. Targets and instruments are separated. While decisions are taken on (national)targets, instruments needed to reach these targets are not adopted. Emphasis isplaced on the need for further study of the feasibility and effects of instruments.The introduction of new instruments in the form of experiments, as a means tomake them less offensive, can be part of this approach. This strategy has theadvantage that a signal is given to both producers and consumers to reduce theiremissions voluntarily, but also that immediate policy costs are not incurred.Furthermore, the targets put some pressure on other countries to adopt similarpolicies.

• All these strategies are observable in the Dutch national environmental policy plan of 1989 and itsaddendum of 1990: Nationaal Milieubeleidsplan, Tweede Kamer 1988-1989, 21137, nrs. 1-2; and:Nationaal Milieubeleidsplan Plus, Tweede Kamer 1989-1990, 21137, Dr. 20.

Decision making about the environment: the role ofexpectalion 85

d. Only unambitious short term targets are met by adequate instruments. In order togive the least offense possible to lobby groups and their public sector counterparts,targets and instruments are assigned to the different sectors of society across theboard. Part of this strategy could be the reliance on voluntary compliance of theprivate sector with the instruments adopted.

All these strategies will be accompanied by the allocation of more resources tothe environmental agencies. In this respect the interests of politicians run parallel tothose of bureaucrats of the environmental agencies. By allocating more resources tothese agencies politicians signal their commitment to the environmental cause, whilesuch a course of action will not meet as much resistance as the adoption of substantialtargets and instruments.

5.11 CONCLUSIONS

Most elements of environmental policy are subject to considerable uncertainty causedby chance and, especially, lack of information. The urgency of many environmentalproblems is difficult to assess. The voluntary response of the private sector to theseproblems is also an uncertain factor. Consequently, risk containment is a centralobjective of environmental policy. Accordingly, targets for the reduction of pollutioncannot be expected to forestall damage in all cases. Uncertainty about the feasibility,effectiveness and enforceability of instruments further adds to the uncertainty thatdecision-makers are facing.

Under these conditions decision making will proceed step-wise. First, the needfor government intervention is determined. Second, a detailed analysis of theenvironmental problem is executed to derive initial reduction targets for pollution.Third, instruments and their effects are analysed. This will result in simultaneousdecisions about targets and instruments. These decision processes will be iterative, asmore information gradually becomes available.

The attitude of a decision maker towards risk is crucial for his decisions. Lowrisk aversion results in the adoption of low targets and 'weak' instruments. Ifconditionsare favourable, minimum costs are incurred. However, under unfavourablecircumstances large damage and high costs of remedial measures are unavoidable. Also,targets for the reduction of pollution have to be tightened drastically. Shock-wise changein economic activity is likely to occur. High risk aversion and the correspondingambitious targets and instruments may avoid such extreme costs. But in many cases thispolicy may prove to be unnecessary and costly. Also, the enforcement of the farreaching instruments needed for this policy may prove difficult.

86 Van Dijk

In the hypothetical case ofa single decision maker with a given attitude towards

risk, this process is relatively straightforward. In practice, however, many actors areinvolved in the decision making process. The interaction between these actors is suchthat the political decision makers are likely to adopt an attitude of low risk aversion.This even occurs when they have included environmental issues in their electoralplatforms. The following policy cycle can be detected. Environmental agencies andpressure groups raise public concern by presenting compelling, new information. Aspublic concern becomes widespread the state of the environment reaches the politicalagenda and evolves into an electoral issue. In the subsequent legislative process otherpublic sector agencies and producer lobbies will oppose far-reaching measures. Thisopposition is likely to dominate, and actual decisions on targets or instruments will notbe far-reaching. Under such policy a worsening of the environmental problem canprobably not be forestalled. Consequently, a cyclical pattern ensues, as theenvironmental agencies and pressure groups use information on the progress ofdetoriation to raise public concern again.

REFERENCES

Arrow, K.J. (1986), "Agency and the Market", in: K.J. Arrow and M.D. Intriligator(eds.), Handbook of Mathematical Economics, vol. III, Amsterdam, 11831195.

Bachrach, P. and M.S. Baratz (1962), "Two Faces of Power", American PoliticalScience Review, 947-952.

Buchanan, J.M. and G. Tullock (1975), "Polluters' Profits and Political Response:Direct Controls Versus Taxes", American Economic Review, 65, I, 139-147.

Cachet, A. and E. Koolhaas (1990), "Om de toekomst van de rechtshandhaving, socialecontrole en handhavingspraktijk in de jaren negentig", Bestuur, 6, 158-164.

Dijk, F. van and P. Nijkamp (1980), "Analysis of Conflicts in DynamicalEnvironmental Systems via Catastrophe Theory" , Regional Science and UrbanEconomics, 10,429-451.

Downs, A. (1957), "An Economic Theory of Political Action in a Democracy", Journalof Political Economy, 65, 135-150.

Intergovernmental Panel on Climate Change (1990), Policymakers' Summary of theScientific Assessment of Climate Change.

Intergovernmental Panel on Climate Change (1990), Policymakers' Summary of thePotential Impacts of Climate Change.

Lindblom, C.E. (1980), The Policy-making Process, Prentice Hall, New Jersey.


OECO (1990), Economics and the Environment: Issues and Policy Responses, Paris.Olson, M. (1965), The Logic of Collective Action, Public Goods and the Theory of

Groups, Harvard University Press, Cambridge.Stroebe, W. and B.S. Frey (1981), "Self-interest and collective action: the economics

and psychology of public goods", British JourTUJ1 of Social Psychology, 21,121-137.

Vollenbergh, H. (1989), "Welvaart en milieu", Economisch Statistische Berichten,3717, 725-728.


B. CASE-STUDIES

TRANSPORT POLICIES AND THE ENVIRONMENT;REGULATION AND TAXATION

Piet RIETVELDFree University Amsterdam

Leo VAN WISSENFree University Amsterdam

6.1 INTRODUCTION

Transport is an important and radipdly growing activity in modem society. It is anessential element of many production processes where movement of goods or labour isrequired (freight transport, business travel, commuting). But it also plays an importantrole in the consumption sector where households need travel for leisure, shopping andother activities. Moreover, transport itself is an important industry in many countries.In the Netherlands, for example, it contributes 8 percent to the GDP, whereas for theEuropean Economic Community this is 7 percent. Aclear relationship can be envisagedbetween total population growth and economic growth on the one hand, and totalmobility on the other. But mobility has grown more than proportionally relative to thesetwo indicators. A number of reasons account for this disproportionate growth. First,economic activities have diversified while production has become more specialized andspatially segregated. This has resulted in an increasing movement of freight and servicesbetween firms and between units of multi-plant firms. The impact of these trends onfreight transport was reinforced by new developments in the logistics of goods handling,especially the so called 'just-in-time' principle, which is relatively transport intensive.Here, stock-in-trade is held as low as possible, in order to minimize capital losses andsave storage space. Second, the spatial pattern of firms and households has becomemore dispersed, due to the large suburbanisation process of the last decades, resultingin longer travel distances. This process was facilitated by large investments in roadtransport infrastructure. Third, due to the improved standard of life, private carownership has grown dramatically in the last decades. In the EEC car ownershipincreased by 32 percent between 1976 and 1984, with the highest rate of increase inGreece (127 percent) and Spain (66 percent) (Eurostat, 1987). In Europe, the situationof one car per household has not been reached yet. For example, in the Netherlands 35percent of all households do not possess a car. However, car ownership is likely to

Environmental Prolcction: Public or Private Choice, pp. 91·110

92 Rietveld, Van Wissen

increase substantially in the coming decades, mainly due to the expected increase in the

number of households and the tendency towards multiple workers per household. Allin all a growth of 60 percent in car ownership up to 2010 is not unlikely (van denBroecke and van Leusden, 1987), accompagnied by an increase in the total annualperson-kilometerage of 40 percent (Schoon op Weg, 1988).

In the debate about protecting the natural environment attention is heavilyfocused on the transport sector. This is probably the result of the central position whichthis sector occupies in everyday life. Unlike some other polluting agencies, there is nodistinction between 'us' and 'them'. We cannot blame it on another group since we alltake part in transportation. Therefore, the public debate about transport and theenvironment is a very interesting subject from the point of view of public choiceanalysis. This paper attempts to develop that particular point of view a little further.However, it is immediately clear that a straightforward application of known theoreticalresults of public choice to this sector is not without problems. First, the transport sectoris composed of two distinct groups: the freight transport industry and passengertransport. The first can be treated as a goods-kilometers producing sector, whiletransport for the second group is basically a consumption activity, which is characterizedby a large number of consumers, who make up total travel demand. Following notionsof household production theory, we assume that each household is a producer ofmobility, by combining transport modes (car, public transport, non-motorized modes)and fuels in a given transport infrastructure. Thus, both the freight and the passengertransport sector can be thought of as transport producers, generating mobility. Theinputs for this production process are (I) infrastructure, (2) transport modes and (3)fuels. The output of this production process is freight and passenger transport. We willfocus on the external effects of this transport production process with respect to theenvironment. Although the automobile industry has a large spinoff effect in manyeconomies we will not discuss the possible externalities produced by various supplyingindustries. The production of cars involves large numbers of raw materials: steel,rubber, aluminium, etc. In some cases these raw materials are produced almostexclusively for the vehicle industry. The production of these raw materials may haveunaccounted damaging effects on the environment (oil spills, depletion of naturalresources, etc.) This adds to the indirect adverse consequences of transport to theenvironment.

This chapter is organized as follows. First, in Section 6.2, a sketch is given ofthe impact of the transport sector on the environment. Next, an overview is presentedof the various instruments that may be used for environmental transport policy. Whileany attempt at classifying these instruments is necessarily somewhat arbitrary, we havenevertheless attempted to draw a distinction on the basis of our assumption of mobility

Transport policies and the environment,' regulation and taxation 93

as a production process. This results in instruments related to infrastructure, transport

modes, fuels, mobility and direct emission controls. The public choice perspective onenvironmental transport policy is discussed in Section 6.4 through 6.6. It appears thatin transport the issue of taxation versus regulation is a problem having no definiteanswer. In Section 6.4 emphasis is laid on the choice between taxation and regulationfrom the perspective of business transport, while in Section 6.5 this issue is propoundedfrom a consumer perspective. If we map the environmental transport policy in theeconomic Left-Right dimension (Hinich, this volume) then the implications of various"green" transport instruments for various income groups must be evaluated. This is donein Section 6.5. The potential application of tradeable permits is discussed in some detailin Section 6.6, while Section 6.7 presents the main conclusions.

6.2 THE IMPACT OF TRANSPORT ON THE ENVIRONMENT

Although by no means the only source of pollution, the transport sector contributessignificantly to the deterioration of the natural environment. These adverseenvironmental effects are mainly attributable to land transport, and we will concentrateon this category. This does not mean that the environmental consequences of othermeans of transport may be ignored. Air transportation, for example, has severe negativeenvironmental consequences in terms of noise and emission.

It is impossible to present a complete list of the negative external effects oftransport. Here the main categories will be discussed briefly, viz. infrastructural effects,parking externalities, noise, traffic accidents and emission. Further, a distinction bymode of transport, by fuel type, and by the geographical scale of the effects Oocal,national and global) will be drawn where appropriate.

InfrastructureThe dramatic increase in mobility over the past decades has necessitated and has beenfacilitated by a massive growth of road infrastructure. For instance, the total length ofmotorways in the EEC has increased by 32 percent in the period 1976-1984. In contrast,the total length of rail lines has decreased by I percent in the same period, althoughcurrent plans in a number of EEC countries seem to indicate a reversal in thisdownward trend (Button, 1989), while at the same time a shift can be envisaged in road

investments from new construction to maintenance. Rail infrastructure is only a fractionof total road infrastructure. The total length of rail lines in the EEC is less than 5percent of total road length. Negative effects of transport infrastructure are mainly atthe local level:


the fragmentation of land use and urban sprawl

the creation of artificial barriers for pedestrians, animals

visual annoyance

These effects apply equally for road and rail, but the total effect of roads is of coursemuch larger. In addition, the construction and maintenance of transport infrastructure

has a number of direct and indirect environmental effects: the use of energy (Lamure,

1989), brine or salt sprinkling, etc. In general the almost exclusive reservation of publicspace by motorized modes, either by design (e.g. in new residential areas) or by usage(in inner cities) is at the expense of non-motorized users.

Parking facilities

Most of the time cars are not used and occupy space that otherwise could have been

used for other activities. Again, this is especially relevant for urban areas, where often

during the day streets are almost blocked as a result of cars parked on the public road.

All this adds to the detoriation of the amenities and attractiveness of urban centers and

residential areas.

NoiseThe environmental effects of mobility as defined here stem from the physical presence

and movement of transport modes. As with infrastructure, the effects are largely at the

local level, and the total effect of automobile mobility far exceeds that of the train. One

of these adverse effects is noise, which is most serious in urban areas, but not

unimportant in rural areas as well, where it extends over larger distances. It is caused

by engines and by tyres. At higher speeds tyre contact with the road is the main sourceof noise. It is estimated that at present 53 million people in Europe are exposed tounacceptable noise levels (above 65 dB). It is interesting to note that the official criticallevel for transport is well above the norm used for industry. For example, in theNetherlands a norm of 60 dB is used for traffic, and 50 dB for industry.

Tramc accidents

Looking only at the number of deaths it may be observed that one hour spent in traffic

is at least a factor of five more dangerous than staying at home (Schoon op Weg, 1988).

Traffic hazard is a function of traffic intensity, speed, road design, weather conditionsand driving habits. Due to major improvements in road and car design traffic hazard has

diminished in absolute terms in recent decades, despite increased mobility. In the EEC

(portugal and Spain excluded) a total of 41 thousand were killed as the result of a trafficincident in 1984, against 52 thousand in 1976. The number of injuries was 1477

thousand in 1984 and 1595 thousand in 1976: a slight decrease. The societal costs of

Transpon policies and the environment; regulation and taxation 95

these accidents are difficult to estimate (see e.g. Jones-Lee et al., 1985, or Kanafani,1983), but they are indeed very high.

F.IImsions and wasteAtmospheric pollution by transport includes both local effects as well as national andlong term global effects. At the local level the emissions of nitrogen oxides (NOJ,carbon oxides (CO) and hydrocarbons (HC) are responsible for 'smog', a mix ofvariousphotochemical oxidants such as ozone. Transport bears a major responsibility for theseemissions: 50 percent of all nitrogen oxides, 75 percent of all CO and 40 percent ofhydrocarbons is caused by transport. Particulates are the most visible effect of transportemissions, and they can be toxic: they also cause dirt and black buildings. Another localeffect, which is especially relevant in urban areas, is the emission of toxic fueladditives, such as lead. At the (inter-)national level acid rain is a serious threat to thesurvival of much of the forests and woodlands. Acid rain is caused by nitrogen andsulphur oxides (NOx and SOz). Transport contributes only marginally to S02 (3

percent), but, as noted before, is largely responsible for NOr At the global level thereare signs that climates are changing due to the so-called 'greenhouse effect', which isgenerated by CO2, As a result of the global warming the sea level will rise, which isharmful for river delta regions such as the Netherlands or Bangladesh. Carbon dioxideis produced by the combustion of fossil fuels and transport is responsible for 15 percentof it.

Emissions vary by mode of transport. In Table 1a number of emission factorsare given for automobiles using alternative types of fuel and public transport. Thesefactors, multiplied by the respective volumes, give total emissions. If we take accountof the fact that public transport carries more passengers per vehicle kilometer, theobvious conclusion is that public transport, especially electric rail, is a much cleanermode than private modes (van Beek, 1990). Freight transport is heavily dominated bydiesel engines. While diesel engines are relatively clean with respect to carbonmonoxide, they contribute significantly with respect to NOx and particulates. Inpassenger cars gasoline is the predominant fuel, although diesel and propane (L.P.G.)are used as well. Propane is cleaner than gasoline with respect to nitrogen oxides andhydrocarbons if no catalyst is used. Gasoline-fuelled cars equipped with a catalystproduce up to 80 to 90 percent fewer carbon oxides, hydrocarbons and nitrogen oxides.Finally, car wrecks, apart from their objectionable visual and physical appearance, canbe very detrimental to the environment if not dealt with properly.


Table 1 Emission factors (emission per vehicle kilometer) of passenger transport in1984

Emission component

Mode NOx CxHx CO S~ Particulates

Gasoline ear 1.60 1.31 7.7 0.09 0.03Diesel ear 0.60 0.31 1.40 0.20 0.40L.P.G. ear 0.91 0.64 0.80 0.09 0.02Motorcycle 0.12 6.00 40.00 0.11 0.12Electric rail 0.00 0.00 0.00 0.15 0.00Diesel bus 1.16 0.46 0.60 0.13 0.12

Source: Peeters (1988)

6.3 INSTRUMENTS FOR TRANSPORT POLICY

Environmental issues are relatively new in transport policy. A number of Europeancountries have recognized the importance of transport policy for reducing environmentalpollution (e.g. Germany, Sweden, Denmark, The Netherlands, Switzerland, Austria)while in some other countries the environmental issue in transport policy hardly existsat all (e.g. France, United Kingdom, Portugal, Spain) (Bleijenberg and Bakker, 1989).Traditionally, transportation policies focused on increasing efficiency, reducingcongestion or improving accessibility, which is often difficult to combine with

environmental goals. In practice, this means that transport policy instruments usuallyserve multiple purposes, and a 'mix' of instruments is generally the outcome of thepolitical decision process. We distinguish between four groups of transport policyinstruments with an impact on the environment, viz. (1) infrastructural instruments, (2)vehicles and fuel related instruments, (3) mobility instruments, and (4) instrumentsdirectly related to the externalities. Within each of these groups a basic distinction maybe drawn between taxation and regulation. Each type of instrument will be discussedbriefly in this section and some information regarding its implementation andeffectiveness in current transport policy in different countries is provided. However, notall of the instruments mentioned here have been put into practice.

Infrastroctural instroments

Traditionally, the provision of transport infrastructure is largely a public matter. Sinceinfrastructure provides the facilities for mobility, this gives the central and localgovernments a powerful tool for transport control, locally as well as on a national scale.

Transport policies and the environme1lJ,' regulation and taxation 97

A prerequisite for a succesful infrastructural policy is its integration into a more general

land use planning policy on the national, regional and local level. Examples of such anintegrated approach at the regional level are the planned growth of cities along majorpublic transport axes. At the local level the restriction of parking space in combinationwith the provision of an adequate public transport system could work well in urbanenvironments. However, the applicability and effectiveness of infrastructural policyinstruments in many countries is hampered by the abscence of a strong planninglegislation and tradition.

In general, infrastructure regulation can occur in a number of ways. Threeimportant regulatory instruments are: networkplanning, parking and traffic engineering.

Network planning may have an effect on total demand for transportation ("eachsupply creates its own demand"), or on the split between various types of transportation.For instance, a number of countries (e.g. Germany, The Netherlands, Belgium,Switzerland) restrict the planning of new road infrastucture and increase investments inpublic transport. Moreover, HOV (High Occupancy Vehicle)-lanes were introduced inthe US to increase the person-t<H:ar ratio (Giuliano, 1989). In the Netherlands, freighttransport lanes are planned to increase transport industry efficiency and thus reduceexternalities per ton-kilometer transported. Other possibilities for affecting mode choiceby means of network planning include the provision of free bus and bicycle lanes.

A second area of infrastructural regulation is parking. Many behavioural studies

stress the importance of parking space for the choice of car versus other modes oftransport. Currently, residential and employment growth mainly takes place at the urbanfringe, where ample space is reserved for parking facilities. However, the amount ofparking space may be restricted through local land use measures or building bylaws. Inurban areas, where the amount of parking space is usually limited, parking restrictionscan be introduced. For instance, in some Japanese cities, parking on the public road isprohibited, so, in order to possess a car, one has to own a private parking spot. Thishas the effective result that residents of urban areas in that country are only allowed toown a car if they also own space to park it. Since space is very scarce in Japanese citiesthis'system has clearly discouraged car ownership in these areas. It has also encouragedthe development of small cars.

Thirdly, traffic engineering may be used as another regulatory instrument forenvironmental protection. Examples of this include traffic signalling optimization toincrease traffic flow efficiency and thus reduce emission per vehicle kilometer; road

design for improved safety or speed reduction, noise screens and low-noise pavements.These types of measures are now widely used in the EEC and other countries.

Infrastructure taxation is another means of transport policy. While taxation ofthe usage of transport networks will be discussed under mobility instruments, here


taxation of the provision of transport infrastructure is relevant. Land pricing andpropeny taxes, although widely used in many countries, has not been applied so muchfor environmental purposes. For example, a differential rate of property taxationreflecting accessibility and potential usage of public transport may be imposed. Anotherform of taxation is parking taxation. This might take the form of a tax on privateparking space to discourage the provision and usage of these facilities.

Vehicle supply and technical standards

Public intervention in the supply side of the automobile market is another way ofreducing environmental damage caused by the transport sector. As noted above, boththe growth of the number of automobiles and the current emission factors areunacceptable from an environmental point of view. With respect to the supply side ofthe automobile market, this suggests policies aimed at reducing the total number ofvehicles together with efforts at decreasing emission factors.

With respect to direct regulation of the total number of vehicles in the market,to our knowledge only a very limited effort has been made so far to propose or toimplement such a policy instrument. In the freight transport market in Germany andsome Canadian provinces some limitations exist regarding the total number of suppliers(Chow and Button, 1983). In the private car market a quantity restriction could take theform of (marketable) permits as discussed in Theeuwes (this volume). This is a veryinteresting issue in the light of public choice theory and will be discussed in more detailin Section 6.6. On the other hand, intervention by means of taxation ofautomobiles isvery common, both in the form of sales taxes and annual vehicle taxes. Usually, as inthe Netherlands, differential taxation schemes exist for passenger and non-passengercars, with differentiation by weight or by engine capacity. More recently,environmentally based fiscal rates were introduced in some EEC countries (Germany,The Netherlands) to encourage the introduction of the new EEC standards for motorvehicles. A car deposit is a possible means of reducing the unaccounted costs of carwrecks.

Emission standards for cars have been introduced in the US, Japan and variouscountries in the EEC over the past decade. In the US emission standards for new carswere introduced in 1983, and more strict limits were set in 1987. Over time a tendencycan be observed to set higher targets and in some countries goals are formulated foremission standards up to the year 2010. For instance, the EEC has set standards foremissions of NOx, CO and CxHxin 1993, which are similar to the 1983 US standards,while for freight transport reductions in emission factors have been proposed on theorder of 50 percent. Some EEC countries (Germany, Denmark, The Netherlands) have

opted for higher emission reduction targets. Emission reductions are possible due to an

Transport policies and the environment,' regulation and taxation 99

increase in fuel efficiency and improved technology, such as electronics, catalysts etc.However, gasoline engines offer better prospects for major technological improvementthan do diesel engines. Of course there is a price effect of cleaner technology. Forsmaller cars, which form the bulk of the total car market in Europe, a rough estimateof the price increase is to to 13 percent (Vleugel, 1988). It is to be expected thatsignificant improvements will be obtained in the technology of clean and fuel-efficientcars in the next decade. That is why most governments rely heavily on these technicaldevelopments to achieve their policy goals. If technological developments turn out tobe insufficient, then policy goals will have to be adjusted accordingly. The same is truefor noise abatement. For example, in the Netherlands noise standards exist for varioustypes of vehicles and have been improved since 1981. Passenger cars are limited to 77

dB(A) in 1990, whereas in 1981 it was 82. A limit of 75 is the goal for 1995, but thishas not been legally enforced. For freight trucks a reduction in limits from 91 to 84dB(A) has been achieved between 1981 and 1990, and a level of 80 dB(A) is set as a

goal - but not a standard - for 1995. So, technological progress sets the limits foremission control.

Another regulatory instrument to reduce environmental damage by vehicles isthe speed limiter. This sets a technical maximum speed for automobiles (e.g. 120kilometers/hour). Certain emissions (e.g. nitrogen oxides) increase exponentially withspeed. For freigI.t trucks speed limiters are not uncommon, but for passenger cars thepublic acceptance of this instrument would be very difficult to achieve.

Fuel supply

As with vehicles, fuel supply may be restricted directly by regulation, and standardsmay be imposed on its contents. Fuel rationing has been applied in the past duringperiods of acute shortage. Rationing would lead to a shift of the market towards fuelefficient cars and other energy sources (natural gas, electricity). Regulations concerningthe lead content in fuels have been tightened in various countries in recent years. TheEEC targets aim at having only unleaded fuels after 1992. Fuel taxation is alsofrequently applied to reduce mobility and support certain types of fuels. For instance,in most EEC countries taxes make up approximately 65-75 percent of the total normalfuel price. For diesel this percentage is 50-60 percent. Unleaded fuel is slightly moreexpensive before taxes, but not after taxation.

Mobility instruments

Total environmental pollution of transport is directly proportional to total mobility.Reductions in the level of mobility, locally or at the national level is an important aimof a number of environmental policy instruments. As before, these instruments include


both regulation and taxation measures. With respect to regulation a number ofinstruments may be invoked. First, traffic flow controls of various types may be

invoked. These include:Maximum speeds in certain zones. For instance, in a number of urban areas inGermany a reduction of the maximum speed to 30 kilometers/hour has been

imposed experimentally ('Verkehrsberuhigung' = traffic calming), with the

observed effect of improved safety, less noise and emission (Blijenberg and Bakker,1989)Allocation of automobile-free zones. This may be imposed in certain natural areas,but also in historical centres and certain residential areas. For instance, in TheNetherlands research has been undertaken to study the feasibility of a car-freeresidential area in the centre of Amsterdam (De long, 1984).

Mobility reduction enforcement plansThese plans make the employer responsible for a certain reduction in the total amountof car-commuting by his employees. The employer has to stimulate various types of

alternative transport modes among its employees: carpooling, vanpools, public transport,etc. in order to reach his mobility reduction targets. Such a plan was first implementedin the Los Angeles region. Although the primary goal of this plan is to reduce peak

hour congestion, it may well be used for environmental policy goals as well. As yet,it is unclear how succesful these plans will be.

Further, in a number of countries some form of regulatory mobility control

exists for automobiles. In Athens, cars may only be driven on odd (even) days of the

month if they have an odd (even) license plate number. In Milan, traffic is banned fromthe inner city during some periods of the week. In the Netherlands, during the first oilcrisis driving was not permitted on Sundays. While some of these measures are takento reduce congestion or energy scarcity problems, some regulations are taken as a directeffect of pollution levels. An example of such a direct mobility control is the smogalarm. This involves forced reductions of industrial activity and transport levels in timesof excessive air pollution.

Taxation of mobility includes a number of instruments. First, toll levies may

be used to cover the direct and indirect costs of transport. Road pricing is a relatedmeans of mobility taxation. The primary goal of road pricing is reducing trafficcongestion, but it can also be applied for environmental policy goals. See thecontribution of In 't Veld (this volume) for a detailed discussion. Fare subsidies are a

form of negative tax to stimulate public transport. In many countries (e.g. Germany, theNetherlands) these subsidies account for 50 percent or more of the real price of the trip.Finally, travel costs may be an element in income taxation, by means of commuting cost

Transport policies and the environment,' regulalion and taxation 101

forfeit. Recently, the level of this forfeit, which is linearly related to commuting

distance, has been criticized in the Netherlands as a premium on long distance

commuting. Therefore, a new system has been introduced that gives commuting bypublic transport an income tax deduction, which is not available for other modes. Again,.this stimulates use of public transport.

6.4 REGULATING VERSUS TAXAnON

In the preceding section we observed that a wide variety of policy instruments exists toreduce the external effects of transport. These instruments vary according to point ofeffectuation (infrastructure, vehicles, fuel, mobility) and according to type (taxes versusregulation). It is striking that instruments which immediately attack emissions areabsent. The explanation is probably that the implementation costs of such measures arehigh. Governments confine themselves to instruments which only partially or indirectlyinfluence the emissions of transport, which may have a detrimental effect on theefficiency of these measures.

Governments make ample use of both taxation and regulation in transportplanning. The use of taxation is no surprise in this resepct. In transport, the governmentnot only functions as an actor to enforce internalization of negative external effects, butalso as a provider of infrastructure. Accordingly, taxes have a double function: theyserve as a source of finance for infrastructure and they provide a correction to the pricesystem to prevent environmental damage. The first function obviously cannot beachieved with regulatory measures.

Buchanan and Tullock (1975) argue that direct regulation leads to barriers toentry and hence to higher polluter profits, which may explain their frequent use inenvironmental policies. Acloser inspection of the regulatory measures used in transportreveals that indeed some examples can be found of such an effect. For example, theimposition of an upper level on the number of landings and take-offs of airplanes perairport secures the position of existing airports. The possibilities to increase profits asa result of such measures are often limited, however, since in transport there is thepossiblity of substitution between transport modes, and also competition by suppliersfrom other countries has a mitigating effect on oligopolistic tendencies. A similarexample of the Buchanan-Tullock case may be given for parking policies as part ofphysical planning. Imposing restrictions on the number of parking places near shoppingareas in order to stimulate the use of public transport may secure the position of existingshopping areas if it goes hand in hand with policies to restrain the total number ofshopping areas in a city. The risk of such a policy is of course that shopping areas justoutside the city will attract more customers, which will not only threaten the position


of shopping areas in the city, but may also have an adverse effect on car-mobility sinceaverage trip distances increase.

Another example where firms may prefer the regulation alternative is in thefield of technological standards for vehicles. The policy of formulating increasinglystrict standards makes it more and more difficult for new car manufacturers to enter themarket. Thus, the established car manufacturers may prevent the entry of new producersfrom developing countries into their markets.

The specification of the exact level of environmental standards is a sensitivepolitical issue, as documented by OECD (OECD 1989). The explanation is that theFrench government has thwarted more radical policies in an effort to protect the Frenchautomobile industry which was not yet entirely ready to comply with stricter standards.Thus, minimum standards are an attractive instrument for technologically less advancedfirms (as long as they can remain above these standards). This system makes it difficultfor more advanced firms to gain the full benefit from their technological advantage. It

also implies a disincentive for these firms to continue R&D activities at the sameintensity.

Direct regulation does not always increase polluter profits however. Maximumspeed limits do not have such an effect, for example. There are obvious technical andpractical reasons why speed should be influenced by direct standards instead of bytaxation. We note in passing that in reality the distinction between regulation andtaxation is not as clear as it seems. The system of traffic fines, where the level of thefine depends on the excess speed above the maximum limit is very near to a taxationsystem with the probability of being caught as an important intermediate variable.

An interesting example where the polluters concerned are in favour of taxationrather than of direct controls on production is the Dutch freight transport sector. Freighttransport is an important economic activity in the Netherlands. Dutch lorries have a

market share of about 25% in international road transport in the EC. Taxes on lorriesare low in the Netherlands compared with neighbouring countries, both with regard tofixed costs and fuel costs (diesel).

The Dutch road transport sector strongly opposes regulatory measures to forcefreight transport in the direction of other transport modes such as rail, or inland watertransport (Bos, 1990). It claims that the government should respect the principle of freechoice of transport mode, although it is clear that the environmental damage caused bythe latter modes is much smaller. Regulatory measures might assume the form ofrestrictions imposed on shippers related to the share of loads to be transported bylorries. The principle of free choice of transport mode has indeed been respected in aconvenant between the government and organizations of transport firms, where the latteraccepted an accelerated increase in the excise tax on diesel oil, the revenues of which

Transpon policies and the environment,' regulation and taxation 103

will be used to subsidize an acceleration of the introduction of cleaner trucks (Bos,1990). Thus, in freight transport one can observe a clear preference for taxation aboveregulation which would undermine the principle of free choice of transport mode.

This rather accommodating treatment of freight transport by road can also beobserved in other areas of Dutch transport policy. In regions with a congested roadnetwork the government proposes a preferential treatment of freight transport with theargument that national economic interest should be safeguarded. One of the proposalsis to provide free lanes for freight transport on congested corridors.

In other European countries direct regulation of freight transport by road is noexception, however. Clear examples are Austria and Switzerland which have formulatedstrong restrictions on transit freight transport by road between Germany and Italy (CE,1989). This is of course no surprise since these countries do not benefit much fromtransit transport and only receive the environmental externalities. But in other countries,too, such as Germany, freight transport by road does not get the preferential treatmentit receives in The Netherlands. The argument that unhampered freight transport by roadis vital for the competitive position of the national economy is apparently more crediblein the Netherlands than in other European countries.

We conclude that among the rich variety of instruments influencingenvironmental effects of transport, both direct regulation and taxation measures areused. That taxation is often used is no surprise in the field of transport, sinceinfrastructure must be financed. But the ample use of direct controls is not in agreementwith Theeuwes' statement that these instruments are only adequate in the case ofemergency situations. I

The choice of regulatory measures can partly be explained by technical andpractical factors (cf. speed limits) and also by the polluter profits arguments given byBuchanan and Tullock (1975). But the example of the Dutch trucking sector shows thatthese arguments must be used with care, since this sector appears to prefer taxes aboverigid standards.

Dynamic aspects of environmental policy deserve special attention, sincetechnological progress plays a primary role in reducing environmental pollution bytransport. One may argue that the formulation of time paths for technological standardsis an attractive way to stimulate technological development, but one must not forget thatthe same effect can be obtained with taxation. A combination of the two is also possible,for example, by formulating time paths of minimum standards and giving a 'subsidy'

1 Theeuwes implicitly mentions yet another argument why direct controls may be preferred: in thecase of a non-eonvex choice set taxation measures may be far from optimal. There is no clear evidencethat in transport choice sets lend to be non-eonvex, however.

104 Rietveld. Van Wissen

(tax decrease) to buyers of cars that already comply with future standards. This would

stimulate automobile manufacturers to improve technology at a faster rate than theminimum requirement (cf. the three-way catalyst subsidy given in some EEC countries).

6.S MOBILITY AND INCOME DISTRIBUTION

The political acceptance of policy measures in the field of transport obviously dependson the distribution of costs and benefits among the actors involved. In the present

section we investigate the relationship between mobility and income distribution. Asindicated in Table 2, ownership and use of cars depend strongly on the income ofindividuals in the Netherlands.

Table 2 Ownership and use of cars according to income class in the Netherlands, 1989.

net individualannual income(dfl)

% individualshaving car at

disposal

average daily distancetravelled by car (Ian)

driver passenger

no own incomeless than 80008000 to 700017000 to 2400024000 to 3800038000 or more

Total

Source: CBS (1990)

18.321.425.951.869.681.7

44.7

4.28.1

10.010.028.942.1

17.0

10.99.48.88.27.66.0

8.6

This table shows that in absolute terms the car is much more important for people withhigh incomes compared to those with low incomes. This might lead one to expect thatpolitical parties with a strong electoral base in higher income groups would opposepolitical measures aimed at a reduction of car use. An example of this happened in TheNetherlands in 1989 when the liberal party VVD forced a cabinet crisis beause the

government proposed fiscal measures that were unfavourable for commuters using cars.

The result needs to be interpreted with care, however, since it appears that in relativeterms the car is important for all income groups. Table 3 shows that the shares of

Transport policies and the environment; regulation and taxation 105

household expeditures on car mobility and public transport are relatively stable amongincome groups. Therefore, one may expect that all political parties with an ideologicalidentity mainly governed by the economic dimension (Hinich, this volume) will bereluctant to support such measures. An empirical example is the rejection of electronicroad pricing by the main political parties in the Netherlands around 1989 (In 't Veld,this volume).

Another example is the lack of support for an increase in fuel taxes observedin 1990 in the Dutch parliament. Only some political parties with an ideological identitymainly governed by a non-economic dimension (e.g. green parties) appeared to favourthose proposals.

Table 3 Household expenditures on mobility according to income class in theNetherlands, 1987.

total expenditures (%) on:groups of nethousehold income(ten percentile)

1 Oowest)2345678910 (highest)

Source: CBS (1990)

car mobility

7.77.6

10.310.610.110.111.212.1H.811.4

public transport

1.11.41.31.3.9.7.9

1.0.8.9

Another element of Table 3 which deserves attention is that in a relative sense,public transport expenditures of higher income groups are not much lower than of lowerincome groups. In an absolute sense they are even larger. This means that aconsiderable part of public transport subsidies - which are substantial in the Netherlands- accrue to high income groups, a fact also noted in a study by the Social CulturalPlanning Bureau (SCP 1989).


Our conclusion is that as long as the economic dimension is dominating thespectrum of political parties, it will be difficult to obtain sufficient support for policiesto make car use more expensive. Even parties with a strong base among the lowerincome groups will be reluctant to provide support, since in a relative sense expenditureson car use are still substantial among their voters.

Another possiblity is that such policies are presented as part of a largerpackage. For example, an increase in taxes on car use may be accompanied by adecrease in taxes on car ownership under the constraint that total government receiptsremain unchanged (the so called budgetary neutrality for the government). Analternative to such a policy of variability would be to increase fuel taxes and to decreaseincome taxes. By means of such packages it is in principle possible to induce areduction in car use with minor changes in net income of aggregate income groups (cf.SEO, 1990). In this case, redistribution does not take place between householdsaccording to income, but accorting to their use of cars. As long as "the automobile" isnot considered a major issue implying a separate political dimension (Hinich, thisvolume), such a policy might gain sufficient support. A general problem with suchvariability measures is, however, that fuel taxes should not differ too much amongneighbouring contries. Since petrol taxes are high in the Netherlands compared withBelgium and Germany, such an approach would require a coordination of policies.

Theeuwes (this volume) states that the price increases caused by environmentalpolicies probably have a larger negative effect in relative terms on the purchasing powerof the poor than of the rich. The data presented in Table 3 are not sufficient todetermine whether this is also true for transport oriented policies. But the table stronglysuggests the opposite, Le. that the lowest deciles of the income distribution will not behurt as hard as other groups by more expensive car mobility.

6.6 TRADEABLE POLLUTION PERMITS IN TRANSPORT

Recently, much attention has been paid in the literature to a "third way" betweenregulation and taxation, namely the issue of tradeable pollution permits. It seemsworthwhile to investigate the applicability of this instrument in transport policy and toconsider its impact on business and consumers. Tradeable pollution permits involve thefixation of an upper level of the total pollution by cars. More specifically, the upperlevel may relate to:

the total number of cars in a territorythe number of kilometers driven by cars in a territorythe volume of pollution emitted by cars in a territory.

Transpon policies and the environment; regulation and taxation 107

The first option is obviously most easy to implement in a technical sense, but

its effects on pollution will not be as direct as those of the other options. Suppose that

an upper level is set for the total number of cars allowed in a territory. Let ~ be thelevel for year t, and let the population aged 18 years and above be PI at the beginning

of year t. Then, every individual in this group may be given CI / PI car ownershippermits. By trading these permits an equilibrium will arise where people selling their

permit will have some additional income for other consumption purposes, and people

buying them give up opportunities for additional consumption in exchange for the right

to own a car. In the following years, the governments may decrease the number of

permits by purchasing them from the public or by lowering their value. Or alternatively,

the number of permits may be increased by issuing new ones.

Implementation problems will relate, among other things, to the use of cars

from other territories (countries). People might for example move to another countryand settle just over the border, where they can use foreign cars without any restriction.For freight transport the permit system would stimulate companies to register in

countries without such a system (cf. the flag choice of shipping companies). This would

be a very unattractive outcome for the Netherlands with its large share in international

freight transport. For passenger transport the last objection does not apply, however. In

a strict sense the system of tradeable ownership permits has never been implemented.

It bears a certain resemblance, however, to the system of car ownership permits in

Japanese urban areas, which was already mentioned in Section 6.3.

The consequences of tradeable car ownership permits on households can be

analyzed as follows. Assume that initially all households with an income higher than A

own a car and that below this level nobody owns a car. Suppose further that the totalnumber of cars is reduced to a certain extent, and that an equivalent number ofhouseholds with an income just above A terminates car ownership. In this case atransfer of money takes place from high income households to low income households.From a purely economic perspective, high income households would vote against thesystem, whereas low income households would be in favour of it. The third group withincomes just above A, will cease to be car owners, but receives a financialcompensation for it. Whether or not this compensation is large enough to cause thisgroup to be in favour of the new system cannot be answered in general terms. It is

clear, however, that should environmental considerations be neglected by households,

then no majority would be found for the new system as long as the majority of thehouseholds remain car owners. The analysis becomes more complex should thegovernment decide to reduce public transport subsidies because those who do not own

cars receive additional income from the car ownership permits. This might lead to a taxreduction which also favours higher income groups.


The above discussion is based on a stylized relationship between car ownership

and income. As indicated in Table 2, the real relationship between these variables ismore complex. There will be high income households which do not own a car andwhich would benefit from a system of car ownership permits. On the other hand, lowincome households owning a car, and which feel that they need the car very much will

be forced to spend relatively large amounts of money to continue car ownership.Cars are an important consumption good in wealthy economies. In countries

such as the Netherlands, the large majority of households own a car or have aspirationsto own one in the future. Introduction of car ownership permits will accentuate thedifference between the "haves" and the "have nots" (of cars). Tradeable car ownershippermits are an additional source of income for low income households, but may yet bevery difficult to accept because they block the way to car ownership in the future. Asa consequence, it will be difficult to obtain political support from both higher and lowerincome groups.

A system of tradeable ownership permits would, if appropriately implemented,check the ongoing growth of the car stock observed in many countries. Its effect on thequality of the environment is most probably less favourable, however, since the carswhich remain in use will be used more intensively. For example, households formerlyowning two cars will now only own one car and use it more intensively than before thesystem was introduced. Another probable effect is that the use of rented cars willincrease (with higher tariffs than before, of course).

As indicated above, the system of tradeable car ownership permits has as maindisadvantages that it does not necessarily restrain pollution but only car ownership, andthat major economic groups will have strong reservations about it. The alternatives ofa system of tradeable vehicle kilometers or of pollution units will be more favourablein these respects. These systems are less rigid, which will increase their acceptabilityfor the interest groups concerned, and their impact on pollution is more direct. It willbe more difficult and costly to implement them, however. These difficulties relate to theproblem of how to take account of kilometers driven abroad, how to develop fraudproof measurement systems, and how to achieve observance of the system.

6.7 CONCLUDING REMARKS

Transportation is a main source of noise and certain components of air pollution. In thispaper we have shown that a wide variety of instruments has been developed aimed atreducing the external effects of transport. It appears that these instruments influenceexternal effects predominantly in an indirect way via inputs such as fuel, vehicles and

Transport policies and the environmelll,' regulation and laxation 109

infrastructure or via mobility; direct taxation or regulation of the external effects

themselves does not occur.Taxation is amply used in transport, which is no surprise since infrastructure

has to be financed. Therefore, it is difficult to disentangle the extent to which taxationis used to create a source of finance and to reduce external effects. Regulation is alsooften used, especially in the field of technical specifications of vehicles. The BuchananTullock (1975) arguments (regulatees prefer regulation because it makes their profitshigher) can be used to explain this result. In other cases (choice of transport mode infreight transport), regulatees appear to prefer taxation above regulation, however, whichimplies that the Buchanan-Tullock arguments should be applied with care. Importantviewpoints which need to be considered are the degree of substitution between goods(transport modes) and the competition by foreign suppliers.

Tradeable pollution permits have not yet been introduced in the field oftransport. Reasons which may explain this relate to the very large number of cars,which makes implementation costs high, and the mobility of cars, which makes itdifficult to apply the territorial concept which is so essential in a system of tradeablepollution permits.

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80s, M. (1990), "Wegvervoer en Milieu", 1ijdschift voor Vervoerwelenschap, 26: 1,4052.

Broecke, A.AJ. van den, en G.C. van Leusden (1987), 8 Miljoen Personenauto's in2010 als Gevolg van demograjische OntWikkelingen plus Welvaartsgroei,Colloquium Vervoersplanologisch Speurwerk.

Buchanan, J.M. and G. Tullock (1975), "Polluters Profits and Political Response.Direct Controls versus Taxes", The American Economic Review, 65, 139-147.

Button, KJ. (1988), An Idelllijicarion and Analysis ofMarkel Failures and GovernmelllIlIlervelllions in the Transport Sector and lheir Likely Impact on theEnvironmelll, OECD W. 7978K112933/ENV/ECO/88.4, Paris.

Centraal Bureau voor de Statistiek (l990b), Budgelonderwek 1987, The Hague.Centraal Bureau voor de Statistiek (l990a), De Mobiliteit van de Nederlandse BevolJdng

1989, The Hague.Centrum voor Energiebesparing (1989), Verkeer en Milieu in West-Europa, Delft.


Chow, G. and KJ. Button (1982), "The Economic Regulation of Road Haulage

(Trucking) in Canada and the United Kingdom", in: R.B. Cross,

Transportation Research Forum; Proceedings of the Twenty-Second AnnualMeeting, Oxford.

EUROSTAT (1987), Review 1976-1985, Statistical Office of the European

Communities, Luxembourg.

Guiliano, G. (1989), "Research Policy and review, 27. New Directions for

Understanding Transportation and Land Use", Environment and Planning A,21, 145-159.

Jones-Lee, M.W. Hammerton and P.R. Philips (1985), "The Value of Safety: Results

of a National Sample Survey", Economic Journal, 95, 49-72.

Kanafani, A. (1983), The Social Costs of Road Transport: A Review of Road TrafficNoise, Air Pollution and Accidents, OECD DOC ENV/TF184.3, Paris.

Lamure, C. (1990), "Environmental Considerations in Transport Investment", in:

Ministerial Session on Transport and the Environment. Background Reports,EXMT & OECD, Paris.

OECD (1989), Economic Instruments for Environmental Protection, Paris.

OECD (1988), Transport and the Environment, Paris.

Peeters, P.M. (1988), Schoon op Weg. Naar een Trendbreuk in het Personenverkeer,Vereniging Milieudefensie, Amsterdam.

Sociaal Cultureel Planbureau (1989), Profijt van de Overheid in 1983, The Hague.

Stichting voor Economisch Onderzoek (1990), Economische Gevolgen vanMobiliteitsbeheersing, Amsterdam.

Vleugel, J. (1988), Verhoging van de Variabele Autokosten, MS Thesis, FreeUniversity, Dept. of Spatial Economics, Amsterdam.

ROAD PRICING: A LOGICAL FAILURE

Roeland J. IN 'T VELDErasmus University Rotterdam

7.1 PREAMBLE

We are maybe - or probably or most certainly - destroying ourselves as we neglect thedisastrous effects of our technologies and our other production methods on ourenvironment. This realization has led to environmental policies. The scientific input toenvironmental policy making relates to the furtherance of effective and efficient policiesand policy instruments.

Environmental policies concentrate around regulation, pricing and permits,tradeable or not, as the main policy instruments. In other chapters in this book, such asTheeuwes' and Dietz and Termeer's, these instruments are dealt with systematically.Their effectiveness and/or relative costs - in particular those of information processing -are discussed. Rietveld and Van Wissen cover the field of transport policies in relation

to regulation and taxation. In practice of course we may find more or less complexcombinations of separate instruments in environmental 'arrangements'. This complicatesthe systematic study t)f environmental policies, but does not change the subject matterin principle. None of the authors just mentioned, however, argues that some of thecharacteristics of the instrument or policy mix itself may be subject to (separate andeffect-independent) normative connotations on behalf of either citizens or politicaldecision makers or both. We will analyse a case in which the potential perfection of anarrangement has contributed to its non-acceptance. We will interpret that observationas an instance of a more general category of circumstances, in which the ambiguous,or more strongly put, the schizoid nature of the values and tastes of individual citizensin modern society is revealed as the main cause of inconsistent public policies. We willargue that a fundamental relationship does exist between individual values and tastes,the procedures for decision making on public policies and the contents of these policies,instruments included.

This contribution aims at a clarification of a certain type of failure in publicpolicy making. The category of failures to be considered has also to do with neglect ofdistributional connotations in proposals for policy measures having environmentalaspects. We will start with the presentation of a case of transport policies withenvironmental aspects, a recent and real proposal to introduce an advanced variant of

Environmenbl Protc<:lion: Public or Private Choice. pp. 111-121

112 In 't Veld

road pricing in the Netherlands. We will argue that this proposal is superior to any otherinsofar as the allocative characteristics of the proposal are concerned. We will considerhow the lack of success of the proposal may be explained. We will offer as a firstconvincing explanation the neglect of distributional side-effects of the proposal. We willargue that this neglect is not due to deficiencies in professionalism on behalf of thepolicy makers. We will suggest, moreover, that our own individual value systems, asfar as certain types of environmental interventions by the state are concerned, may lackconsistency; that we find ourselves on the horns of a fundamental dilemma. The outer,visible testimony of this dilemma is the frequent failure of seemingly convincing policyproposals in the environmental area. We will not present a solution for this problem,other than the need for society to reflect on its own values and tastes. We will suggest,anyway, that without this kind of reflection it will be useless to strive for more or lessperfect environmental public policies.

7.2 CASUS

At the end of the eighties preparations were made to introduce an advanced system ofroad pricing in the most densely populated area of the Netherlands, the AmsterdarnHague-Rotterdam coastal conurbation known as the Randstad. Up to that point the mainroads in the Netherlands were free from turnpikes: tolls were only known at theentrance to some of the many bridges and tunnels. The new proposal had to do with theattempts to diminish congestion, in particular during rush hours, with the policyobjective of strengthening the relative position of public transport, and with someenvironmental notions. The first objective of the project, organised at the Ministry ofTransport, Public Works and Water Management to further the proposal, was to developand to implement a system of road pricing whereby the behaviour of the car driver isinfluenced by pricing in such a manner, that:

rush-hour traffic in the Randstad will be diminished, so that certain normsconcerning the reduction of delay times will be achieved;the growth of car traffic will be decreased (Ministry of Transport, Public Works andWater Management, 1989).

From a technological point of view the selected type of road pricing appeared to be veryingenious. The system was called Rekening Rijden which may be translated as BillRiding. About 150 'stations' in an area where about 8 million people live on less than10,000 square kilometers would be equipped to charge the passing individual carautomatically. The driver would not need to stop. Each automobile would be providedwith a small computer that would register the passage of numerous 'stations', calculatethe cost and show the remaining amount available. The computer in the car could be

Road pricing: a logical failure 113

'loaded' regularly with a smart card, costing to the buyer a certain amount of money,

'good for so many passages', that would allow the car owner to drive along the stations

as long as the chip still indicated a certain reserve balance. Each car could be reloaded

at numerous places. The stations would register any passage. They would be connectedWith a central computer. Later on the car-owner would or could receive a report on the

passages accumulated during a certain period of time. Each passage without a 'valid'

chip would be registered photographically at the station and would be sanctioned with

a fine.

At the Ministry of Transport, Public Works and Water Management an

excellently equipped team was designing the system, preparing the necessary legislation,

looking into the technological features, calculating the aggregate costs and benefits, etc.

The prospects for a speedy introduction of the system at first sight seemed to be very

favourable. The planning schemes showed the possibility of complete introduction

around 1995. When a new coalition government was installed in the beginning of

november 1989, its programme still sustained the introduction of Bill Riding, although

the formulation of the relevant paragraph already exhaled a somewhat hesitant air.

However, six months later the Minister of Transport, Public Works and Water

Management wrote a letter to Parliament in which she refrained from any further

prompt steps leading to the introduction of this specific system). I The reasons presented

were rather vague: it was pointed out that certain groups in society at large had shown

considerable resistance to the introduction of this specific system. But in the same

sentence the minister once more stressed the point that some kind of pricing of the useof cars would be inevitable in order to achieve the already accepted environmental

objectives and in order to be successful in the struggle against road congestion.Therefore, according to her, the government would switch for the time being to moretraditional systems of tolls and turnpikes. The subsequent debate in parliament supportedthe ministers' point of view. 2 Only a small part of the opposition (066) asked why the

system of Bill Riding had been accepted as a keystone of national traffic policies when

its feasibility still had to be demonstrated, but was rejected right now, after its technical

and economic possibilities had been assessed rather favourably. In her reply the minister

did not answer that specific question. The minister, however, added to her judgement

that the research into the technical problems of Bill Riding would be continued in

cooperation with other European nations in order to introduce such systems over thelong term in a European context.

I Letter d.d. 7 May 1990 from the Minister of Transport, Public Works and Water Management tothe Chairman of the Second Chamber of the States General, Tweede Kamer 1989-1990, 20922, Dr. 9.

2 Meeting d.d. 19 June 1990; minutes printed in: Tweede Kamer 1989-1990, 20922, Dr. 17.

114 In 't Veld

During the months before this letter was revealed, it had become clear thatmany pressure groups, experts and public bodies, such as cities and provinces, opposedthe system of Bill Riding, which we will abbreviate as BR henceforth. It also becameclear that the government had seriously neglected the necessity of the mobilisation ofpotential support or, in other words, its task to provide sufficient momentum in favourof the proposal concerned. In an earlier stage the government had been warned alreadythat serious resistance had to be expected (Ringeling/In 't Veld, 1989).

BR appeared to be a threat, not only to the Dutch road transport companies thathold a considerable share of the total European market of road transport, but also to alllocal and regional authorities who feared a major shift from main roads - along whichthe BR stations would be situated - to narrow rat runs, that would overload the intimatelocal infrastructure. Moreover, the organisations representing the car owners, as wellas the car dealers' organisations, protested strongly.

The more or less natural supporters of BR were many environmentalorganisations, which played a prominent role on the Dutch public policy making scene.They, however, showed only weak or moderate support. The complicated technologicalframework of BR did not promote ready support, especially not from organisations thatalready displayed a very general level of mistrust for technocratic solutions toenvironmental problems. Neither did the public transport companies and lobby groupsdisplay any strong support. They already found themselves in many problems caused bya sudden increase in the demand for public transport since 1988 which - not forecast atall - caused many capacity bottle-necks. Right now they did not need any furtherdemand increases which would be caused by BR. So the coalition in favour of BRconsisted of comparably weak supporters, while the opponents had developed a veryclear and loud voice. However, one would have expected that government wouldsucceed in gradually gaining momentum, so that time seemed to be on its side. For, aswe shall see right now, as far as allocation aspects are concerned, the properties of BRare superior to any other version of road pricing, and broader than any kind ofregulation of road traffic (with the possible exception of a very refined system oftradeable permits).

7.3 ALWCATION AND BR

If one defines a network of roads as a scarce resource in itself, and this independent ofprices put on their use, and if one accepts the minimisation of total social costs of acertain number of individual transport transactions as the main goal of transport publicpolicies, it is clear that waiting periods as a cost factor will play a major role in anycost-benefit analysis of public transport policies.


Of course the policy objective just mentioned is a simplification, even if oneincludes environmental external effects in the cost function. For it appears thatgovernments may also aim at a decrease in the needs for individual transport by attemptsto influence working habits, etc. The latter, however, is not relevant to our presenttheme.

The inclusion of environmental effects in the cost function strengthens therelative importance of the minimisation of waiting periods because cars waiting in linein a traffic jam are more harmful to the environment per kilometer of travel than carsmaking progress at moderate speed.

Costs will be at a minimum level if each car driver receives incentives whichstimulates him to choose an optimal itinerary and an optimal hour to get from A to B.The technical characteristics of BR are such that wide variations in the 'price' to passa certain station are possible. The authorities may set higher prices during rush hoursthan during others, thus influencing the plans of individuals as far as the exact choiceof the driving period is concerned. The authorities may also increase the attractivenessof - up till now - rather unpopular itineraries by setting a relatively low price for those,thus optimizing the total use of all itineraries available. So the total system of all pricesset in BR may be such that the use of all available roads over time leads to a minimumin delays, traffic jams, and other phenomena related to congestion. Of course, theredoes exist a major problem of information gathering by the users on the prices to be set.Prices will only produce effective incentives if the individual is informed sufficientlywell beforehand. It may be clear that this fact results in limits as to the feasible variation- both over time and between stations - of the total collection of prices concerned.Moreover, the prices should not be changed too frequently. The restrictions of theindividual's capacity to gather information and to process it as a parameter influencinghis behaviour in a rational manner, clearly limit the utility of BR as an allocatingdevice. BR, however, still appears to be far superior to any tolls where the driver wouldhave to stop in order to pay, to any turnpikes with totally invariable prices, and, ofcourse, to any more general device such as a tax increase on gasoline, or on carpurchases.

The elegance and potential effectiveness of BR as an allocation aevice have notcontributed to its popularity. While observing the perceptions of different parties, onewould expect the contrary: the elegance of BR is at the same time a major threat. Thepotential of BR to register all individual passengers and to produce a report later on hasbeen interpreted as a danger to privacy. The possibility that BR could register eachillegal passage and send a bill or a fine or a combination of both afterwards, is amenace to all; perfection in the repression of illegality is not at all desirable to mostcitizens. We will re-interpret this in a broader framework concerning the structure of

116 In '1 Veld

value patterns later on. Moreover, many do not like to have price introduced wherecollective decision making mechanisms were predominant before, even if they benefit

from the change. We will discuss this later, too.

7.4 DISTRIBUTION AND DR

It is the view of most well-informed observers that the plans for BR have been killedneither by uncertainty as to the technical feasibility nor by allocative or informationaldeficiencies. They have been killed by the presence of the 'social welfare mother', thestill young divorced woman with one or two children who is dependent on socialwelfare because her former husband has disappeared or otherwise refuses to payalimony. The mother has to bring her children to school each day during rush hours.She absolutely has to pass a BR station. There is no public transport available on thatparticular itinerary. The children are too small to ride a bicycle. This mother would behanned severely and disproportionally by BR.

In classical economic theory it is argued that from an economist's point of viewa certain policy may be favourably assessed if it would be possible to compensate thelosers, resulting in a situation in which some are better off and none are worse off,regardless of the realisation of the compensation. This test is called the Kaldor-HicksScitovsky test, or simply the 'hypothetical compensation test' (In 't Veld, 1975, p. 38).Later authors have rejected this test and have demanded actual compensation of thelosers - so that the losers are not worse off - in order to be able to speak about a bettersituation after the introduction of a certain policy. There has to be room forconsideration of the costs of the compensating mechanism itself.

According to the hypothetical compensation principle, the introduction of BRcan still be recommended, without the need for any further questions. It is sufficient to

prove that the extreme losers might be compensated. It is not necessary then to designany real compensating mechanism. But it is exactly at this point that the hypotheticalcompensation principle as such is unsatisfactory. In reality the costs of the transactionsthat should be made to recognize and to compensate the extreme losers may prove to

be prohibitive! So the case to be proven is whether it would be possible to trace thosewho would be harmed diproportionally and then to compensate them against reasonabletransaction costs. Probably many social security experts would have a headache, werethey to be confronted with this type of questions. For they, more than anyone else, areaware of the fact that the information systems supporting social security regulations areoverloaded, that each additional element in a large data base degrades the quality of thewhole system, threatens the reliability, etc. It is hard to forecast when the bucket willbe full, when an additional drop of water will cause serious damage. Moreover, the

Rood pricing: a logical failure 117

same experts realise that it is impossible to refine an existing regulation without

producing perverse effects of some importance. Each regulation that defines, among

other things, a set of individual rights, will inevitably produce incentives. A smart

society will as a consequence adapt a new behaviour pattern.The present judgement of many social security experts will probably be that

each additional detail will both produce a disproportionally large qualitative decrease ofthe necessary information systems as well as important perverse effects in behaviour.

So these experts will strongly oppose the actual introduction of such compensation

mechanisms as described above. In other words, the transaction costs of realcompensation of the extreme losers of BR would be considered to be unreasonably high

by most experts. In the Netherlands these experts are politically rather powerful: somany politicians follow their opinion. If, in reality, compensation cannot be organized

reasonably well, then the distributive aspects will produce a solid base for a negativefinal opinion on such innovative proposals as BR.

The foregoing illustrates a fundamental dilemma in the present stage of

development of the advanced western society. Strong political arguments are brought

forward in favour of a decrease of public expenditures. Moreover, it is felt that pricingmight produce an effective tool to regulate individual behaviour according to

environmental objectives. However, the (re-)introduction of a pricing mechanism

appears to cause implementation bottlenecks and distributional problems. The dilemma

that results from the absence of feasible proposals for change leads to uncertainty andnon-decisions. As a consequence more simple - and, from an allocative point of view,inferior - policies will often be adopted. In the case under consideration a general

increase of gasoline tax was preferred to BR by parliament.

7.S INSTITUTIONAL NORMS AND BR

Free collective arrangements are both a blessing and a curse. Our norms and values are'curled' around the status quo. Our natural conservatism leads us to positive normativeattitudes towards the status quo, also, and maybe in particular, where the scope of our

societal institutions is involved. We are not only historically reproducing a certainvariant of parliamentary democracy, and a specific set of functions and roles of thestate, but we have also invested emotionally in the institutional framework of our

societies. We not only rationalize the public production and maintenance ofour physicalinfrastructure and the free availability of our roads as an effective device, but we also

like it; and we dislike change. We would even refrain from change if everyone could

be made better off by the introduction of pricing in money terms, because our emotional

resistance to change would not have disappeared. The process of individualisation of the

118 In 't Veld

scarcity of some up till now collective 'arrangements' is contrary to our established

emotional preference for - seemingly - free goods. Decollectivization causes hostilesentiments. Of course it is necessary to add that this observation is strictly contextbound. In other parts of the world one might at the same time observe emotionaldissatisfaction with the existing societal institutions, and as a consequence an emotionaldrift towards the re-introduction of the market mechanism. One might wonder why, forthis observation is also valid in cases where no strong allocational advantages ordisadvantages or distributional effects are visible.

This last question demands a more fundamental analysis of the structure of ournorms and values where our attitudes towards societal institutions are concerned. It isnot uncommon in welfare economics to assume that individuals do hold beliefs and

norms regarding the shape and results of societal institutions, and in particular to themechanisms for collective decision making. Arrow has stipulated that there may exista more or less general consensus concerning the fundamental characteristics of what hehas called a social welfare function, a procedure or a set of procedures for collectivedecision making. According to his insight into the human mind he has assumed that thevalues concerning these characteristics have developed more or less independently of thesubject matter of decisions, and have taken their place in the ideological environmentof modern societies as the following conditions for satisfactory collective decisionmaking: equality of individual citizens, equal position of different alternative proposals,absence from dictatorship or imposition, independence from irrelevant alternatives (toquote the most simple of such characteristics). And indeed, such conditions are verymuch like the roots of parliamentary democracy we all appear to have accepted.Arrow's Impossibility Theorem (1951), however, represented the insight that no socialwelfare function will fit a plausible set of such generally accepted characteristics.3

Some of Arrow's critics have argued that it is naive to assume that norelationship exists between the above mentioned characteristics or conditions on the onehand and the contents of specific decisions on the other. Those critics argue:

Either that citizens relate their normative positions to the expected outcomes of thefunctioning of specific institutions, given a certain preference function for certainmatters. So this assumption suggests, that we prefer democracy as long as it suitsus in terms of our individual welfare, and that we would prefer dictatorship, forinstance, once it would be certain that we would be better off then;Or that it is senseless to discuss a general social welfare function while in realitya complex and partially fragmented set of institutions is in operation. Thisfragmentation might be in accordance with individual preferences insofar as

3 For a recent review see: Deemen, 1991.


individuals connect certain issues to certain specific methods of social choice; so forinstance we might be in favour of state regulaton of external security, but at thesame time like to be absolutely free individually in our personal mobility.

Arrow himself could easily escape such criticisms because he only discusseda very general coice problem, the societal ordering of complete social states. We choosehere a still more complicated position: we combine the already mentioned hypotheseswith the following:

People reveal preferences through fragmented institutions. The market place allowsonly for quid pro quo transactions. The political institutions do enable us to displayaltruism and to enforce the implementation of collective decisions. But each of themhas its own restrictions, limitations and imperfections: the authority of the state isfragmented horirontally, in the trias politica, and by functional and territorialdecentralization vertically. As a consequence the implementation of policies is oftenin the hands of other agencies than was the decision making. Intermediate,

voluntary institutions further complicate the institutional landscape. So people movethrough and act within a fragmented world of institutions. Nobody or nothingenforces an individual to be consistent in his revealed principles and preferencesthrough these same fragmented institutions. An individual may reveal differentiatedbehaviour through the fragmented institutions. He may vote for a political party thatfavours very strong environmental policies and at the same time himself produce alot of noise or a lot of air pollution on the market place. Individuals may be

moralists and parasites both at the same time. They can and will profit from theinstitutional fragmentation of modern society: as 'citizens' they may reveal their

moral positions by voting or by otherwise moving within the political realm, but as'consumers' or as 'entrepreneurs', they will utilize each hole in the law, they willavoid regulations or even sabotage them at the same time.

According to this interpretation fragmentation and macro-inconsistency are no mistakesor accidents or perverse effects, but phenomena based upon individual preferences.However the aggregate result of this institutional structure on the level of society atlarge may seem to be paradoxical: politics may for instance produce consensus or quasiconsensus into the direction of strong environmental policies on a very lbstract level.As soon as the translation of these abstract policies into concrete measures is at stake,however, this consensus has disappeared altogether. For then another problem is on thehidden agenda: not only the realization of the 'moral' view, but also the futurepossibility for free-ridership, the opportunity to avoid or to sabotage the implementedmeasure.

Many thus reveal a preference for imperfect implementation of politics, forincomplete control. So the interactions between individual values and tastes on one hand

120 In 't Veld

and the functioning of societal institutions on the other appear to be complex and

dynamic.The sociological nature of individual values and tastes may be partially

determined by the observation and by the internalisation of the operations of a set offragmented institutions, but the actual shape of these values and tastes may in tum leadto the preservation of the institutional fragmentation of society. In other words, themixed institutional character of our society may be a result of our willingness or evenour ambition to be altruists and parasites at the same time. Still more strongly put, onemay observe a historical interactive relation between the outer institutional structure ofsociety, the outcomes of its functioning and the reproduction and gradual change ofindividual values and tastes.

Such a manner of reasoning may explain adequately some of the negativeopinions on a technologically rather perfect tool as BR: in our potential role as a freerider, a parasite, we strongly dislike the idea of perfect implementation.

The analysis of negative attitudes towards BR has more general implications:in any case where pricing is re-introduced in the realm of hitherto collective arrangements, we may expect strong resistance fed from a combination of arguments, bothfrom the distributional, normative side of our personality and from the free rider side.So we may regularly observe a very mixed pattern of attitudes: on one hand planninginstitutions are supported in the development ofvery strong environmental policies, suchas on the basis of, even passionate, normative attitudes on behalf of a majority ofindividual citizens and political parties. On the other hand, proposals for the implementation of such policies will meet fierce criticisms in many cases, for then an unholycoalition of 'distributional fanatics' and 'free rider protagonists' will join forces tooppose effective measures. This explanation also clarifies why it is not just to blamegovernment agencies or civil servants for the lack of effective implementation: the evilis in ourselves, in our twofold resistance to consistency.

Of course, the acceptance of weak implementation politics to neutralize thepotential free-riders' resistance will deliver a mess, a future crisis in itself. For, a littlelater on, the deficiencies in the functioning of the system, for instance lack of controlof abuse, will offer a powerful argument to politicians to point to the perverse effectsof the system installed, and to build a case in order to get rid of it, and so todiscontinue the BR system, or any other comparable device.

Advanced societies may want to develop reconstructions of the pricing mechanism to meet environmental problems or any other phenomenon of 'new scarcity'. Theanalysis in this chapter may have clarified why strong resistance is to be expected.Shrewd policies will be necessary to ensure success. Maybe we may also have to changethe institutional format of our societies. But the most intriguing remaining questions


concern ourselves as smart, ever-ehanging beings, at the same time both altruists andfree riders.

REFERENCES

Arrow, K.J. (1951), Social c1wice and individual values, 2nd ed., Yale UniversityPress, New Haven.

Deemen, A.M.A. van (1991), "Coalition formation and social choice", NICI,Katholieke Universiteit Nijmegen.

Ministry of Transport, Public Works and Water Management (1989), First progressrepon on Bill Riding, The Hague.

Ringeling, A.B., and RJ. in 't Veld (1989), Advice concerning Bill Riding, submittedto the Audit Team Bill Riding, Ministry of Transport, Public Works and WaterManagement, The Hague.

Veld, R.J. in 't (1975), Meerderheidsstelsel en welvaanstheorie, Stenfert Kroese,Leiden.

DUTCH MANURE POLICY: THE LACK OF ECONOMICINSTRUMENTS

Frank J. DIETZErasmus University Rotterdam

Katrien J.A.M. TERMEERErasmus University Rotterdam

8.1 INTRODUCTION

In the welfare economic literature environmental problems are traditionally describedas external diseconomies (cf. Maier, 1985; Bromley, 1986). This tradition has its rootsin Pigou's Economics of Welfare (Pigou, 1920). Just as much a tradition amongeconomists is Pigou's recommendation to internalize external (dis)economies. Accordingto Pigou (pigou, 1920, p. 192) the state should correct the market failure by imposinga tax on the production of external diseconomies (e.g. charging for the emission ofprocessing water) and by subsidizing the production of external economies (e.g.purification of processing water). In this way the external economy (e.g. the naturalresource used) receives a shadow price which is included in the agents' private costbenefit calculations. If the shadow prices are set at the right level, a Pareto optimalexploitation of nature - that is pollution of the environment and depletion of naturalresources according to the preferences of the economic agents - is supposed to be theresult.

In current environmental economics the Pigovian internalization method hasevolved into a set of so-called economic instruments, including different types of leviesand charges, subsidies and marketable pollution rights (Bohm/Russe1, 1985;Opschoor/Vos, 1989). Despite the frequent pleas for the use of economic instruments,hardly any of these are used in current environmental policies (Downing/Hanf, 1983;lEA, 1988; Opschoor/Vos, 1989). Traditionally, regulatory instruments such asstandards regarding emissions and discharges, product and process requirements, bothexecuted by way of licensing and monitoring, have been used as the basic means ofenvironmental policy in most countries. Polluters' compliance is mandatory and oftensanctions for noncompliance exist. The remaining pollution is frequently taken care ofby public authorities. The tradition of applying this 'command and control philosophy'has historical roots in the urban sewerage and other public hygiene programs of the 19th

Environmental Protection: Public or Private Choice, pp. 123-147

124 Dietz, Termeer

century. Insofar as economic instruments are applied, levies are used especially to raise

funds for environmental policy expenditures (including subsidies).In this chapter we shall make an attempt to explain the dominance of direct

regulation for the case of the manure problem in the Netherlands. The main obstaclesagainst implementing economic instruments are to be found with the interests of agentsin both the public and private sector who play an important role in the decision makingprocess. After a brief sketch of the nature of the manure problem (Section 2) andcurrent governmental policy (Section 3), we shall describe and analyze the main agentsand their interests involved, using the public choice framework (Section 4). Subsequently, we shall describe and analyze the power play around the attempts to implementthree economic instruments in Dutch manure policy: subsidies, marketable pollutionrights and regulatory taxation (Section 5). Section 6 contains concluding remarks.

8.2 THE DUTCH MANURE PROBLEM

Over the past 40 years Dutch agriculture has witnessed an unprecedented developmentof its livestock production. This is most clearly illustrated by the growth of animalnumbers (Table 1).

Table 1 Dutch livestock (millions of head).

Year Cattle Pigs Poultry

1950 2.5 1.9 23.51955 3.0 2.4 30.71960 3.5 3.0 42.41965 3.8 3.8 42.31970 4.4 5.7 55.41975 5.0 7.2 68.11980 5.2 10.1 81.21985 5.2 12.4 89.91990 4.9 13.9 92.8

Source: Wijnands, Luesink and Van dec Veen, 1988, p. 242 and CBS, 1991.

Between 1950 and 1990, the numbers of cattle have doubled, the number of chickenshas quadrupled and - most dramatically - the number of pigs is almost eight times higher

Dutch manure policy: the lack ofeconomic instruments 125

now than in 1950. This development should be understood (cf. Van der Stee et al.,1989) as a response to:1. a growing international demand for animal products;2. a favourable EC-eommon agricultural policy, that is:

- government price support for milk,- no import levy for imported feedstuffs, and- substantial price support for cereals;

3. an excessive labour supply in agriculture, especially in the sandy regions of thecountry.

Dutch farmers made good use of the proximity of the harbour of Rotterdam.Large amounts of concentrated feedstuffs were imported and greatly facilitated thedevelopment of a flourishing pig and poultry sector. In the dairy sector, farmers benefitfrom continuously improving production techniques. It was a success story that manyEC farmers and ministers were envious of. The growing imports of feedstuffs resultedin an even larger increase of exports of agricultural products. The only product that wasnot exported, however, was manure. Obviously, the substantial growth in animalnumbers resulted in an equally dramatic growth of the volume of that smellygsubstance. I

In the old days animal manure was highly valued for its ability to increase cropproduction levels. However, with the invention of chemical fertilizers, and with thesegregation of the traditional mixed farms into specialized arable farming and specializedlivestock production, manure lost its prominent position. Particularly on the specializedpig and poultry farms, manure is now often treated as mere waste, which needs to bedisposed of in the cheapest way possible. As such farms generally own very little land,the manure is applied to their land in such large quantities that serious environmentalproblems have resulted.

In order to illustrate the waste-like character of manure Table 2 presents acomparison between the actual application of nutrients and the nutrient requirements forvarious crops. The 'over-fertilization' is most striking for green maize, a typical cropfor pig farms because it does not suffer much from an overdose of manure. Where therequirements of nitrogen are approximately 200 kilograms per hectare, the averageapplication easily reaches 900 kilograms per hectare in the sandy soil regions. On

grassland nitrogen use is as high as 500 (on clay) to 600 (on sand) kilograms perhectare, which is 30 to 50 percent higher than required.

I In the year 1985, for example, the Dutch livestock sector produced 96 million tons of lDIDure,

which is equivalent to 235 million kilograms of phosphate (Produktscbap Vee en Vlees, 1991, p. 83).

126 Dietz, Termeer

Table 2 Estimated use of nitrogen (from manure and chemical fertilizers) in 1985compared with the nitrogen requirements of various crops.

grasslandgreen maizearable land

used

530135275

clay

required

315200160

used

590930250

sand

required

350200180

Source: Calculated from Van Biezeo en Hoogervorst, 1989.

The environmental problems related to the use of manure can be grouped intothree categories: (1) phosphate emissions to surface water, (2) nitrate pollution of

groundwater, and (3) acidification by ammonia emissions.2 The quality of surface waterin the Netherlands has been seriously affected by high phosphate concentrations,resulting in abundant algal growth and distortions of fish populations. Only 30 to 35

percent of the phosphate that farmers apply is taken up by the crops; the remainder islargely absorbed by the soil, which acts as a buffer. Presently, only 1 to 3 percent ofthe applied phosphate reaches the surface water (accounting for roughly 15% of theyearly phosphorus load). When the buffering capacity is filled up soils are saturated.From that moment on all phosphates applied to the land (from manure and fertilizers)

will leach into ground and surface waters, which will ultimately result in the destructionof plant and fish life in Dutch waters. Almost 30% of Dutch soils are already saturated.

The nitrate pollution of ground water is primarily perceived as a healthproblem. Roughly 70% of Dutch drinking water is produced from ground water. Moreover, the continuous deterioration of the quality of surface water increases theimportance of ground water as a source for drinking water. Due to high levels ofnitrogen use in agriculture, nitrate concentrations in ground water continue to rise. Insome instances wells have had to be closed down, and more closedowns are expected.

The third environmental problem concerns acidification. It is commonly knownthat the acidification problem has a strong trans-boundary component, which makes itvery difficult to solve. The production and spreading of manure leads to volatilizationof ammonia. Ammonia emissions account for 60% of the deposition of acidifyingsubstances that originate from Dutch sources. In order to reduce the deposition of acid

2 Manure also contains heavy metals, such as cadmium, copper, mercury, lead and zinc, originatingfrom concentrated feedstuffs. The application of manure to land substantially contributes to theaccumulation of heavy metals in soils and food. Too much nitrate and phosphate can also damage thefertility of the soil. In this paper we leave out these specific environmental problems, since we focus onthe environmental effects of nutrient leakages from manure application.


on Dutch territory it therefore seems more effective for the Netherlands to focus on the

reduction of ammonia emissions (than that of NOx and SOz emissions).Although these environmental problems occur throughout the country, there are

certain regions where they hurt more than elswhere. This is not only due to the regionaldifferentiation in agricultural production, but also due to the specific characteristics ofthe environment. Unfortunately, the most harmful activities are located in the mostvulnerable regions cf the country, that is on the sandy soils in the south and the east.

Water movement:: through S,.'lndy soils are relatively rapid, which explains why

leaching of nutrients to the ground water occurs predominently in these regions. Themap in Figure I shows the areas with the highest concentrations of nitrogen in

percolation water. These areas mainly correspond with the location of the sandy soilsand coincide with the regions where the intensive livestock farms are concentrated. Only7% of the country is covered with forests. Unfortunately, the sandy soils contain by farthe greatest part of the Dutch forests, which have shown to be highly sensitive to

ammonia concentrations in the air. The map in Figure 2 shows the (calculated)deposition of NHx• There is a significant correlation between the loads of ammoniadeposition, the regions in which most intensive livestock farms are concentrated and the

regions in which the greatest part of the Dutch forests are located. Over 50% of all

Dutch forests have reported to be "less than vital", which is a nice way of saying thatthe~ trees will die.

_0'

"."--.-- .F

()

D 0 Ifj'"i

< 5.6 < 11.3 < 22.6

••< 45.2 > 45.2 mg N~

Figure 1 The average

concentration of nitrogenin perculation waterper agricultural area(Langeweg, 1988, p. 2(8).

128 Dietz, Termeer

~ depositlon~target gUIde level

of 1210 mol/ha/year

D deposition> 1270 mol/na/year;

reduction of a-25~ is needed

• deposition >1270 mol/ha/year;

reduct ion of 25-50~ is needed

_ deposition ;>1270 mol/ha/year;

reduction of >501 is needed

Figure 2 The calculateddeposition of NHx in TheNetherlands (Van de Klundertand Veelenturf, 1987, p. 32).

8.3 THE DOMINANCE OF DIRECT REGULATIONS IN DUTCH MANURE

POLICY

In order to curb the adverse environmental effects of the livestock sector, the Dutchgovernment has developed a manure policy. The policy aims at a gradual reduction ofthe use of manure on agricultural land, without reducing the size of the national herds.In the government's vision, farmers should be given enough time to make the necessaryadjustments. The manure policy is designed to regulate the application of phosphatecontained in manure. It is acknowledged that nitrogen in manure also causesenvironmental problems, but the volatile nature of this element was thought to causeunsurmountable problems for the design of effective regulation. It was believed that, byregulating the use of manure-phosphate, the nitrogen application could also be restricted.

In November 1984 the S(Ka}led Interim Act was implemented. This law aimedat preventing further expansion of the herds of cows, chickens and pigs. At the

beginning of 1987 the Manure Act was implemented. This Act is a legal framework

which enables the government to take additional measures to abate the environmental

effects of manure use. In accordance with the Manure Act the government proclaimedso-called phosphate standards in May 1987. Until the end of 1990 the application of

DUlCh manure policy: the lack ofeconomic instruments 129

manure was to be limited to amounts equivalent to 250 kg phosphate per hectare for

grassland, 350 kg/ha for green maize and 125 kglha for all other arable crops. The

amount of manure that, according to these standards, cannot be used on farmland iscalled the manure surplus. 3 The manure surplus can be calculated at various levels:farm level, regional level and national level. The calculated surplus levels depend on theamount of manure trade actually taking place or presumed to be (theoretically) possible.This has made public discussions on this subject extremely complicated.

The manuring levels were calculated in such a way that no manure surpluswould arise at the aggregated level of the whole country before the end of 1990.

Meanwhile, regional surpluses could be reduced by transportation of manure to regionswith a relative deficit. Farmers, their organizations and the government hoped that newtechniques would be available at the end of 1990 to reduce nutrient leakages to theenvironment, such as the industrial processing of manure and a substantial reduction ofthe nutrient content of animal feed. Anticipating these new techniques the level of themanuring standards were announced to decrease in four succesive steps according theschedule in Table 3, until, by the year 2000, the final standards would be reached. Theexact level of the final standards has still not been determined, but they should beequivalent to the amount of phosphate taken up by the various crops.

Table 3 Legal standards for using manure in kilogram phosphate per hectare per year.

Period Grassland Green Maize Arable Land

1987-19901991-19941995-20002000-...

250 350 125200 250-151 125175 125 125amount of phosphate taken up by the crops

Source: Ministry of Agriculture, 1989. p. 51 and (for green maize) Memorandum Manure Policy SecondPhase.

3 Dietz and Hoogervorst criticized this definition of manure surplus from an ecological point of view.In current manure policy a farm has no manure surplus if no more phosphate is applied to the land thanis allowed according to the ruling standards. They propose to introduce the ooncept nUlrielll surplus.which is defined as the difference between the actual amount of all nutrients used on land and the socalled enviroNnelllal standards for the application ofnutrients. These environmental standards are deducedfrom the maximum losses of nutrients to soil, water and air that are acceptable from an environmentalpoint of view. These maximum nutrient levels encompass all manures and fertilizers (Dietz andHoogervorst. 1991).

130 Dietz, Termeer

Regarding the choice of policy instruments, current manure policy is dominatedby direct regulation. Apart from the already mentioned phosphate standards, farmers arenot allowed to dump manure on their land between 1 October and 1 March, whichimplies that no manure dumping is allowed beyond the growing season. Furthermore,farmers are obliged to plough the manure into their land within 48 hours afterapplication in order to prevent volatilization of ammonia. Also, the manure productionon each farm is not allowed to be more than the manure production in the year 1986.Finally, farmers have to keep an accounting system for manure, are obliged to buildaccomodation to store manure beyond the growing season and are allowed to extendtheir livestock only under strict conditions. All these regulations are explicitly meant to

reduce the nutrient leakages to the environment.4

On the other hand economic instruments are hardly used. As far as charges areimposed, they are meant to finance research and adjustments at farm level. For thispurpose government has created the so-called Manure Fund. The manure surplus levybrings in most money. A manure surplus at farm level is taxed with a (relatively small)charge. The objective of the Manure Fund is to supply financial support for researchand technological developments that can help to alleviate the manure problem. Allefforts are concentrated along three lines of approach:1. the development of manure processing plants;2. the transportation of surplus manure to deficient areas;3. the reduction of phosphate (and nitrogen) contents in animal feed.Most of the money and attention has gone to the development of manure processingplants. It is hoped that these factories will turn the watery manure into a dry, granularfertilizer that can compete with ordinary chemical fertilizers. In that way, manure wouldalso be a product that can be exported, which would both reduce the national manuresurplus and add to the balance of payments.5

To summarize, farmers are not only confronted with manuring standards perha for various crops. They are also facing various prescriptions and prohibitions at farm

• It is beyond the scope of this paper to evaluate the current manure policy in the Netherlands. Dietzand Hoogervorst demonstrate that Dutch manure policy is both ineffective with respect to the reductionof nutrient leakages to the environment (by leaving free the application of nitrogen, the use of chemicalfertilizers containing both phosphate and nitrogen, and the application of manure from other agriculturalanimals, such as sheep, goats, geese, ducks, fur producing animals, etc.) and inefficient (by the almostexclusive use ofdirect regulations and neglecting economic instruments) (Dietz and Hoogervorst, 1991).

5 Dietz and Hoogervorst suggest an alternative nutrient policy which bids fair to be both effective,in the sense that the environment no longer deteriorates from excessive use of phosphate and nitrogen inagriculture, and more efficient than current manure policy, in the sense that the cost-benefit ratio of theproposed nutrient policy is substantially more favorable than the one of current manure policy (Dietz andHoogervorst, 1991).

Dutch manure policy: the lack ofeconomic instrumeNs 131

level, meant to achieve the manuring standards. The result is a very complicated'command and control' system, which considerably limits the free choice of farmingpractice. Although many economists advocate the use of economic instruments (cf. thecontribution of Jules Theeuwes elswhere in this volume), there seems to be someobstacles to doing so.

8.4 TIlE AGENTS IN TIlE MANURE POLICY FIELD

In the next section of this chapter we shall argue that the lack of economic instrumentsin current manure policy can be explained by the influence which various agriculturalinterest groups exert on governmental policy. For various reasons politicians,bureaucrats, interest groups and individual firms have an aversion to economicinstruments. However, to analyze this aversion we need to set aside the traditionalconception of the state in welfare economics. In welfare economics the public sector isimplicitly seen as a monolithic entity, which is able to correct market failures, such asmisallocation resulting from externalities, on the basis of complete knowledge of preferences and production possibilities, while acting as an impartial referee, being above theparties involved. This naive conception of the public sector is criticized by publicchoice economists, who argue that public decisions are made by flesh and blood humanbeings, pursuing their own interests in their role of politician, bureaucrat orrepresentative of a specific pressure group. This view offers an opportunity for asystematic analysis of the decision making process in the public sector, which is in thiscase confined to the instruments used (or neglected) in current manure policy.

A large number of agents participate in the decision making process withrespect to the manure problem. Most of these agents are either concerned aboutagricultural or about environmental issues. Together they are the players in the policyarena. During the process agents enter and leave the arena. In this section we focus onthose agents whose participation is rather stable. Four groups of agents aredistinguished: firms, bureaucratic agents, political leaders and pressure groups. Inaccordance with the public choice approach, agents are conceived as rationally actingpersons or organizations with clear objectives concerning the desired environmentalquality, livestock production, manure policy and technical solutions.

Firms

Poultry and pig breeding are the main branches in the intensive livestock sector. By farthe larger part of production is organized in family farms, which means that allmembers of the farmer's family help to run the farm. The farmer's objective is tocontinue his firm, so that he keeps his job and a minimal family income. Because an

132 Dietz, Termeer

unemployed farmer has hardly any chances on the labour market, he is willing tocontinue his farm even when the marginal benefits are less than the marginal costs (De

Hoogh, 1967). In this context intensive livestock farmers prefer a manure policy thatstabilizes or increases their chance for continuation.

Farms differ in the amount of manure surplus produced, in specialization(cattle, intensive livestock, crops), in size and in the age of the farmer. This implies thatfarmers have different interests regarding agricultural policies. Particularly in the lastfew years, differences in interests have become more salient due to the political andpublic pressure on the agricultural sector with respect to environmental quality. Forexample, farmers who have no manure surplus tend to see the manure problem as noneof their business. This attitude causes some tension in the agricultural sector, becausee.g. arable farmers in the north of the country are reluctant to contribute (financially)to the solution of the manure problem. In so doing they forget that they overfertilizetheir land with chemical fertilizers.

Concentrated feedstuff is an important input for fattening pigs and poultry,which accounts for almost 65% of all production costs (Produktschap voor Vee enVlees, 1991). Consequently, the feedstuff industry has a great interest in the existenceand expansion of the intensive livestock sector. The main goal of the feedstuff industryis to maintain or increase returns. Responding to political and public pressure to reducethe environmental effects of manure, they are willing to change the composition offeedstuffs, that is to reduce the nutrient contents of feedstuffs. Because fewer cattle, pigsand poultry roughly means a proportional reduction of revenue, feedstuff producersoppose every regulation that reduces the herds. In order to prevent a reduction of theherds, they are prepared to contribute financially to the development of technicalsolutions of the manure problem (Den Hartog, 1989).

The fattening process results in meat for consumers. A big industry has developed around the trading and processing of meat. In the eighties the meat industry hadsuch an overcapacity that a reorganization was needed (Produktschap voor Vee enVlees, 1991). To avoid overcapacity in the future the industry needs a certain quantityof meat from the intensive livestock sector. Together with the feedstuff industry it willoppose all measures that directly or indirectly reduce the size of the herds (Produktschapvoor Vee en Vlees, 1991).

Bureaucrats

The policy tasks of the Ministery of Agriculture, Nature and Fishery are implementedby two divisions. The production division is responsible for agricultural production andfishery, while the nature division deals with nature, land development and the qualityof agricultural products. Among other things the production division helps farmers to

Dutch manure policy: the lack ofecorwmic instruments 133

produce for the European and world markets. It offers advice to farmers on aspects of

their production process, assists the sector with research and development and representsthe Dutch agricultural interests in international institutions. Contrary to the logic of thisdistribution of resposibilities, the production division was put in charge of the manurepolicy, instead of the nature division. Most bureacrats at the production division havean agricultural background (by birth and/or education). Consequently, they primarilyperceive the manure problem from a pure agricultural point of view and considerenvironmental problems as less important than agricultural problems. They easilyidentify themselves with the farmers and other firms in the agricultural sector. Througha sophisticated system of research, education and consultancy the production divisionhas stimulated the rapid development of the intensive livestock sector over the past 40years. In the beginning of the seventies the production division was already warnedagainst an excessive manure surplus. However, the bureaucrats of the productiondivision denied or minimized the problem for a long time (Algemene Rekenkamer,1990; see also Anna Laan in this volume).

After the manure problem was recognized, the agricultural bureaucrats operatedon the basis of two objectives: (1) stimulation of technical solutions and (2)monopolization of regulatory tasks. Agricultural bureaucrats are used to handlingproblems in a technical way. To this end they have various specialized agriculturalresearch institutes and an agricultural university at their disposal. In tackling the manureproblem and designing a manure policy all efforts were focused on technical solutions,such as manure distribution systems, manure processing plants, reduction of nutrientcontents in animal feed and improvements of fodder techniques. The ultimate objectiveis to maintain an internationally competitive intensive livestock sector. In other words,all efforts are directed at the abatement of the environmental effects of manure withoutany substantial reduction of the national herds. This approach not only serves theinterests of the sector but also those of the bureaucrats.

Regarding the regulatory tasks there is a struggle of competence between theMinistry of Agriculture and the Ministry of Environmental Affairs (Frouws and De

Groot, 1988; Algemene Rekenkamer, 1990). Initially, agricultural bureaucrats tried tomonopolize all regulatory and control activities concerning manure, refering to thetypical agricultural character of the issue. Bureaucrats of the Ministry of EnvironmentalAffairs were afraid that the environmental effects of manure would receive a lowpriority at the Ministry of Agriculture. On the basis of their competence with respectto environmental affairs, they claimed competence for manure policy. After many yearsof interdepartmental rivalry a political compromise between the Minister of Agricultureand the Minister of Environmental Affairs was achieved in the course of the eighties.The Minister of Environmental Affairs would become co-responsible for manure policy.

134 Dietz, Termeer

But, until now, agricultural bureaucrats dominate the policy making process. Until

recently this was partly due to the lack of knowledge about agriculture at the Ministryof Environmental Affairs. Bureaucrats at that ministry are dependent on informationprovided by their collegues from the Ministry of Agriculture. Furthermore, the formerministry has only existed for approximately twenty years. This implies that it has tobattle for all its tasks with the vested ministries, such as from the Ministry of Agriculture.

Most bureaucrats of the Ministry of Environmental Affairs are young andenthusiastic. In comparison to their colleagues from the Ministry of Agriculture they arerelatively receptive to the introduction of economic instruments in manure policy.However, their objectives are not very clear. On one hand they want to achieve strictenvironmental standards. On the other hand they do not like fierce struggles withagricultural bureaucrats.

PoliticiansPoliticians feel the pressure of both public opinion to improve environmental quality andthe agricultural sector to protect their economic interests. In regard to the improvementof the environmental quality politicians face the problem of the choice of instruments.In theory they are assumed to be omniscient, omnipotent and benevolent policy makers,knowing exactly the level of the marginal social costs of nutrient leakages from manureapplication. To correct this externality they only have to impose a (Pigovian) tax onnutrient leakages that equals the marginal social costs, after which optimal allocationwill be restored. However, since they are not omniscient and omnipotent, politiciansmore or less grope in the dark about the environmental effects of a levy, because theyare not familiar with the preferences of the economic agents for environmentalimprovements as well as their interests in environmental degradation.6 If they want todecrease nutrient leakages, the environmental effects of levies are relatively unknown. 7

6 This issue boils down to the problem of what value society puts on a particular environmentalquality. In this respect the market fails. Although some progress has been made with alternativeevaluation methods, such as 'hedonic pricing' and 'contingent valuation' (Miler, 1985; Freeman, 1985;Anderson and Bishop, 1986), these methods only indicate individual preferences for a sound environment.It is, for example, not clear whether CVM underestimates the willingness to pay for a particular environmental quality (Hoehn and Randall, 1987) or overestimates this willingness to pay (Crocker and Shogren,1991).

7 Marketable pollution rights partly overcome this problem. The total amount of emissions derivedfrom the desired environmental quality can be fixed and maintained at a constantleveI. However, regionalconcentrations of emissions cannot be excluded, which is one of the main features of the Dutch manureproblem.


On the other hand, it seems that the effects of direct regulations on the environment canbe predicted much better, mainly depending on how much effort is made to uphold legal

regulations. This is not to say that the advantage of predictable effects completelyexplains why politicians one-sidedly choose direct regulations. But up to now it hasprevented them from using economic instruments more extensively.

Also, politicians are far from benevolent. Their view of the manure problemis influenced by their linkages with the agricultural sector. The Christian Democratic

party, for example, has strong bonds with the agricultural sector. Most farmers voteChristian Democrat. Although environmental quality is an important issue for ChristianDemocrats too, they carefully avoid involvement in an environmental policy whichcould generate a loss of electoral support from the agricultural sector.

The Dutch Liberal party, which holds similar views to the Conservative partyin the United Kingdom, also has considerable connections with the agricultural sector,especially with big farmers and the agricultural industry. Because this party deliveredsome popular Ministers of Environment Affairs, there seems to be no fear for the loss

of electoral support when environmental issues are at stake.The Social Democratic party has never been very interested in agriculture. It

has hardly any electoral support among farmers. With respect to environmental issuesthe party is ambiguous, especially when environmental goals interfere with the interestsof people with low incomes.

Pressure groups

Dutch agriculture is firmly organized on a corporative basis. Most agricultural agencieshave a dual task: on the one hand promotion of agricultural interests and on the otherhand administration of (parts of) the agricultural sector. Farmers, the feedstuff industry,as well as the meat processing industry, are represented in this powerful agriculturalinterest mediation structure. The most salient features of this structure will be delineatedbelow.

Almost every farmer is a member of one of three central farmers' organizations: the protestant, catholic or liberal one. These three organizations work together inthe Board of Agriculture (in Dutch: "Landbouwschap"). This board has monopolizedthe promotion of agricultural interests. Regarding agricultural policy it has regulatoryand executive competence. In spite of the different and often contrasting interests of thevarious groups of farmers, this corporative structure was never broken up into morehomogeneous organizations. The three farmers' organisations and the Board ofAgriculture pretend to deal with the interests of all farmers.

Apart from the horizontally organized Board of Agriculture there are verticallyorganized Commodity Boards (in Dutch: "Produktschappen"). Each Board represents

136 Dietz, Tenneer

a single chain in the production process, such as that from input industry to farmers, or

from farmers to processing industry and commerce. The Commodity Board ofFeedstuffs (in Dutch: "Produktschap voor Veevoeder") and the Commodity Board ofCattle and Meat (in Dutch: "Produktschap voor Vee en Vlees") are relevant for theintensive livestock sector. Each Commodity Board has a similar range of competenceto the Board of Agriculture, but its competence is limited to the single chain(s) of the

production column under its authority.The Boards carefully look after the interests of their members in order to

maintain their prestige and to obtain the information needed. With respect to manurepolicy they try to minimize the costs for their members and to delay the introduction ofstrict regulations and standards. The Boards support technical solutions in order to avoida reduction of the national herds by governmental regulation (Landbouwschap, 1990).With the aim of keeping a firm grip on the agricultural sector the Boards try to obtainnew regulatory and executive competences. The Commodity Board of Feedstuffs, for

example, imposed a levy on feedstuff in order to finance both research concerning thedevelopment of techniques for the reduction of ammonia emmisions from farms and theimplementation of these techniques on farms. Anticipating the development of a manurepolicy the Board of Agriculture, as early as the seventies, created an organization tomediate between supply and demand of manure in the whole country, the so-called'Manure Bank'. The Manure Act, established later, delegates several tasks to thisNational Manure Bank, such as the collection of manure accounts of individual farms.Another example of the firm grip of the Boards on the agricultural sector is the way inwhich manure processing capacity is created at present. The Board of Agriculture uses

its regulatory competence in order to develop and construct sufficient manure processingplants. All farmers in a manure surplus region have to pay a levy per ton of manuresurplus to finance the construction of these plants. Moreover, farmers will be obligedto deliver their manure surplus to the plants.8

The interests ofconsumers ofagricultural products are not officially representedin the corporative mediation structure. Only some inspection agencies from the Ministryof Agriculture keep an eye on the quality of agricultural products.

In the Netherlands there are some national and many regional environmentalaction groups. The environmental organizations enjoy much sympathy from the public,but lack significant numbers of members. They are partly financed by Oocal, regionalor national) government and they partly rely on private gifts. Most environmental

8 The Board of Agriculture asked a special Committee to develop ideas for financing and organizingindustrial manure processing. The Board supports the recommendations of this committee for theimposition of a levy on the manure surplus of a fann and to require delivery of the surplus to processingplants.

Dutch 11UllIUre policy: the lack ofeconomic instruments 137

organizations were founded at the beginning of the seventies. At that timeenvironmentalists were largely looking at environmental problems from an ideologicalpoint of view. The free market was seen as the main cause of the environmental crisis.During the years of active participation in the political arena these ideas became moredifferentiated (Cramer, 1989). But, until now, environmentalists have been reluctant

to consider the price mechanism as an instrument to improve environmental quality.They prefer direct regulation, such as emission standards and product and processrequirements. According to the Dutch environmental movement the manure problem is

due to the irresponsible intensification of agricultural production processes and theunlimited growth of the pig and poultry herds. In its view only a considerable reductionof the herds and an extensification of production processes can solve the manureproblem. This scenario does not automatically result in a decrease of income if farmers

are able to increase the added value to the firm (e.g. cheese from the farm, regionalspecialities). Furthermore, environmentalists have no confidence in the technicalsolutions so firmly advocated by the farmer organizations. According to this approach

the environmental movement has developed several alternatives for current manurepolicy (Stichting Natuur en Milieu, 1987; Landelijk Milieu Overleg, 1989).

Relations between agentsAs a result of their compromise on competence the Ministers of Agiculture and ofEnvironmental Affairs have installed the 'Manure Commission', which consists of top

level bureaucrats from both Ministeries. All policy proposals with respect to the manureproblem are developed in this commission. The agricultural interest organizationsmaintain close relations with the Ministry of Agriculture. The Board of Agriculture isalways consulted in preliminary talks about the matters at stake in the Manure Commission. Moreover, agricultural bureaucrats, members of the agricultural interestorganizations and representatives of the related industry frequently meet each other invarious permanent sector committees as well as in ad hoc committees (e.g. thecommittee for the development and implementation of technical solutions).

The Ministry of Environmental Affairs is not supported by similarly powerfulinterest organizations. Environmental bureaucrats frequently consult with representitivesof the environmental movement. Traditionally, the contacts with the agricultural sectorare incidental and superficial. Attempts at an intensification of these contacts have beengoing on for several years.

The agricultural interest organizations also enjoy close relations with the Chris

tian Democratic and Conservative members of the permanent Parliamentary Commissionon Agriculture in which the manure policy is evaluated and, if needed, adjusted.

138 Dietz, Termeer

Furthermore, some members of the Board of Agriculture are also Members of Parliament, which enables them to exert direct and formal influence on the manure policy.

To summarize, the agricultural sector has substantial means to influence thedesign and implementation of the manure policy on the basis of various informal

contacts, institutionalized consultations and formal powers. This state of affairs reflectsthe corporative character of the Dutch agricultural sector. However, agents from outsidethe agricultural sector are gaining influence as a result of the increasing severity of the

environmental problems in agriculture (fermeer, 1990).

8.5 POWER PLAY REGARDING ECONOMIC INSTRUMENTS'

The decision making process about manure policy three kinds of economic instrumentsare objects of power play: subsidies, marketable pollution rights and regulatory taxation.

Traditionally, subsidies have frequently been applied in agricultural policy. As early asin the beginning of the seventies, when the rapid growth of the manure production wasrecognized for the first time as a serious environmental problem, subsidies oninvestments were extended to cover facilities for the reduction of ammonia emissions.These subsidies were partly financed by taxes, such as a small levy on feedstuffs, havingno or hardly any regulatory (allocative) impact. Since the implementation of the ManureAct in 1987 further increases of manure production on individual farms have beenstrictly conditioned. For most intensive livestock farmers this resulted in a maximummanure production level equivalent to the level of 1986. The fear of paralyzing effectson the agricultural sector that the Manure Act incited, led to proposals from farmers'organizations to create marketable production rights for manure. Finally, since thepublication of the National Policy Plan for the Environment in 1989 by the Ministry ofEnvironmental Affairs, the use of regulatory taxes as an instrument of environmentalpolicy has been put on the political agenda.

Subsidies

In the beginning of the seventies public pressure against intensive livestock productionincreased. Public annoyance concentrated on the bad smell in the neighbourhood ofintensive livestock farms and the manure surplus at some farms. Responding to this

pressure the agricultural interest organizations took several initiatives to mitigate theseproblems. Most initiatives were financially supported by the Ministry of Agriculture.

9 For the reconstruction of the decision making processes a variety of Dutch documents have beenexamined, e.g. Parliamentary Proceedings, annual reports of the Boards and of the feedstuff and the meatprocessing industry, agricultural newspapers, magazines of the environmental groups, and several notes.


Examples were the so-called 'Nuisance Fund' and the subsidies for the transportation

of manure.The 'Nuisance Fund' was created by the Commodity Board of Feedstuffs in c0

operation with the feedstuff industry. In order to finance this fund the Commodity BoardofFeedstuff imposed a levy on concentrated feedstuffs. The Ministry ofAgriculture was

willing to make a contribution to the Fund equaling the revenues from the levy. Theobjective of the fund was to provide financial support to the development andapplication of clean technology. Most subsidies were paid to starting or expandingfarmers who must install special equipment in order to acquire a Nuisance Act license,without which production was not allowed.

The Board of Agriculture organized transportation facilities for manure fromfarmers with a manure surplus to farmers with a manure deficit. For this purpose'regional manure banks' were created. Furthermore, manure transportation costs were

subsidized by the Ministry of Agriculture. Because it lasted until 1987, before theManure Act was implemented, dumping on land was a legal and much cheaper way toget rid of manure than transportation. Consequently, farmers were only willing to

transport their manure surplus if it did not cost them anything. When, in the year 1979,the transportation subsidies were diminished farmers immediately stopped manuretransportation and increased manure dumping on their land.

At the time the Manure Act was implemented, farmers were used to subsidiesas an instrument of agricultural policy. At that time it had become normal practice thatthe Ministry of Agriculture subsidized all initiatives for the abatement of manureproblems. Only the environmental movement and the Social Democratic party objected

to these subsidy facilities, because it conflicted with the 'polluter pays principle'.Moreover, in the view of these groups transportation subsidies hid the existence of aserious problem. For the bureaucrats it was clear that, as long as there was nolegislation on the production and application of manure, the only way to stimulatefarmers to respect the environment was to offer them considerable subsidies.

After the Manure Act was implemented, the system of subsidies was expandedinstead of reduced. But the main objective of subsidies was no longer the stimulationof environmental investments on farms and the transportation of manure. Instead, thedevelopment of technical solutions became the primary goal. It was hoped that newtechniques concerning the nutrient content of feedstuffs and manure processing wouldenable substantial reductions of nutrient leakages to the environment without reducingthe size of the herds or limiting the freedom of farm practice. All agents with economicinterests in the intensive livestock sector (Ministry of Agriculture, farmer's organisa

tions, the Boards and the feedstuff and meat processing industry and a substantial partof the farmers) were willing to contribute financially to the development of such

140 Dietz, Termeer

techniques. Indeed, this trajectory of technical solutions matches their common interest

in a large and competitive intensive livestock sector. The only issue left was thedistribution of the costs. Which part would be paid by government and which by thesector? And in what way would the costs be distributed among the various agents in the

sector?

The environmental movement firmly opposed the one-sided option for technical

solutions, which in most cases amounted to so-called end-of-pipe solutions. This was

most clearly illustrated in the option of industrial processing of manure. All money

spent on these large subsidies could, in its view, be better spent on the conversion to

low-input agriculture or on paying the farmers to leave the sector. In their oppositionto subsidies on manure processing factories environmentalists found allies in the EC andthe chemical fertilizer industry. But this alliance did not have enough power to prevent

the subsidies. In January 1991 the agents in the agricultural sector reached agreement

about the distribution of the costs for manure processing. The Ministry of Agriculture

promised to contribute 265 million guilders as a subsidy to the construction and

exploitation of manure processing plants.

POUutiOD rightsAccording to the Manure Act the number of animal places on each farm must beregistered at the reference date of 31 December 1986. This number is multiplied by astandard amount of manure production per animal species (pig, chicken), which resultsin a fixed manure production level per farm, measured in kg phosphates. The manure

production level thus registered is equivalent to the so-called manure production rights

of a farm. It is legally forbidden to produce more manure than the standard of 125 kgphosphates per hectare. However, if on the reference date more manure is produced ona farm than the standard, no curtailment is imposed. The manure production rights

above the standard of 125 kg per hectare are calledfree production rights. In the contextof the Manure Act these free manure production rights can be seen as pollution rights,because they correspond to the calculated phosphate leakages to the environment. Thesepollution rights are in most cases not transferable. A complex set of regulations in theManure Act in most cases amounts to an embargo on buying and selling these rights.

The Board of Agriculture firmly protested against the non-transferability of freemanure production rights for fear of para}yzing effects on the intensive livestock sector.In particular, non-transferability implies that efficient farmers are not allowed to buyout

less efficient farmers. The Board pleaded for a more flexible transfer regulation. The

Minister of Agriculture promised to consider such a possibility at the moment theManure Act was implemented (Spring 1987). Until now, four years later, many

proposals for a more flexible transfer regime have been put forward, but no consensus


has been reached. Although the Board of Agriculture states that any regime allowingtransfers is better than the current one, the conditions under which transfers of freemanure production rights would be permitted are in dispute. The dispute centers on twoissues: (1) Are transferable manure production rights really desirable? (2) What should

be the rules for the initial distribution of the rights?Regarding the first issue, transferability implies that manure production rights

will become a capital asset. For this reason most young farmers oppose transferability.Indeed, starting farmers would not only have to buy farm, land and cattle, but alsomanure production rights. Furthermore, owners of small farms fear their long runprofits will not allow the purchase of enough manure production rights, which willultimately jeopardize the future of their farm. Finally, commercial banks are reluctantto finance the purchase of manure production rights. Due to the still increasingenvironmental effects of manure production, they fear the government will be compelledto reduce the total amount of manure production rights, so that the banks will be leftwith loans on rights that no longer exist. Despite these objections, the majority of allother agents in the agricultural sector supports the introduction of transferable manureproduction rights.

For the advocates of transferable manure production rights the initialdistribution of the rights seems to be the hot issue. In discussions on the question ofwho gets which part of the total amount of manure production rights, the differencesbetween various groups of farmers have become very sharp. Small farms want toexclude big farms, farms in regions with a manure deficit want to exclude farms in

surplus regions, farms with a relatively large land area want to exclude farms with little

or no land, farms with arable land want to exclude farms without arable land, familyfarms want to exclude non-family farms, etc. All these positions are represented in theBoard of Agiculture, which results in confusing recommendations to the Minister ofAgriculture.

The feedstuff and meat processing industries have always been seen aspromotors of big farms. They support transferable manure production rights, but refuseto take a position in the debate on the initial distribution of these rights, because thismatter does not seem to affect the size of the herds.

The bureacrats of the Ministry of Agriculture also advocate transferability.Along with the farmers' organizations they fear diminishing internationalcompetitiveness of a paralyzed intensive livestock sector. In designing regulations theyare constrained by the condition set by the Minister of Environmental Affairs that totalmanure production is not allowed to increase. This condition seems to be fulftlledautomatically, because the amount of manure production rights is fixed as of 31December 1986. However, anticipating the reference date, farmers temporarily took on

142 Dietz. Tenneer

many more animals than they used to do before. After 31 December 1986 they cut their

herds back to normal size. In this way most farmers have managed to acquire moremanure production rights than they actually need. At the very moment manure produc

tion rights are made transferable, these dormant pollution rights will be sold for the

highest bid, after which the nutrient leakages to the environment will increase.Therefore the Ministry of Environmental Affairs requires that a system of transferable

manure production rights contains an arrangement to avoid the activation of the dormant

pollution rights. The negotiations on this issue did not yet reach a definite conclusion,

but it seems that the Ministries and the Board of Agriculture will agree upon the

proposal to attach 30% of each transaction of manure production rights. This

arrangement is believed to neutralize the increase of the manure production after the

activation of dormant manure production rights.

In the debate on the intial distribution of manure production rights the agricul

tural bureaucrats take the position that small firms have no future. In their view only

medium-sized or larger farms have enough earning capacity to justify the required

environmental investments.

The political parties also hold different opinions on the initial distribution of

manure production rights. The Christian Democrats promote the family farm, the

Liberals stress the freedom of enterprise and the Social Democrats opt for a central role

of government in the distribution of the rights.

Initially, the environmental movement objected to any system of transferable

manure production rights, being affraid of the activation of dormant rights and of the

regional concentration of ownership. Currently, the insight has grown that a system of

transferable rights also offers the possibility for the government to buy manureproduction rights. Buying rights could be an instrument to decrease manure production

and accordingly to decrease the nutrient leakages into the environment. This proposal

continues to gain support in the Social Democratic party.

Regulatory taxation

Although environmental economists have been promoting regulatory taxation for a long

time, the issue has reached the political agenda only since 1989. Until that time

regulatory taxes played hardly any role in environmental or manure policy. The main

reason for this state of affairs was that none of the important agents in the agricultural

sector supported the use of regulatory taxes.

The Ministry ofEnvironmental Affairs prefered direct regulation, because much

experience had been accumulated concerning this instrument, while the impact of

regulatory taxation was a blind spot. Interest in alternative instruments only emerged

after the enforcement of existing regulations had become a serious problem.


In preliminary attempts to investigate the possibilities of regulatory taxation theMinistry of Environmental Affairs did not receive support from the environmentalmovement. Although some economists from the environmental movement advocatethem, most environmentalists do not believe that regulatory taxation can be an effectiveinstrument to stop nutrient leakages. They hold the view that only a considerablereduction of the herds will be effective. Besides, among many environmentalists leviesand charges are seen as objectionable 'licences to pollute'.

Although their Minister agreed to start research, the bureacrats of the Ministryof Agriculture are not looking forward to the use of regulatory taxation either. They areafraid that the resulting increase in production costs will substantially degrade theinternational competitiveness of Dutch farmers.

The Board of Agriculture takes a similar position. Moreover, the Board holdsthe view that the instrument of regulatory taxation is only a serious option if (I) it isclear that the current instruments fall short and (2) alternative options, by which thecosts of the levies and charges can be avoided, are availible for the farmers. Becausein the view of the Board both conditions are not fulfilled, regulatory taxation is rejected.This rigid position is shared by most farmers. Because they have already invested inenvironmental adjustments and transportation facilities, they are not looking forward toadditional obligation~. It is striking, however, that the opposition of farmers and theirorganizations is confined to regulatory levies. When a levy was announced to financethe construction of manure processing plants, farmers offered much less resistance, evenwhen this levy has, as a matter of fact, approximately the same level as a regulatorylevy.

The feedstuff and meat processing industries also reject regulatory taxation. Intheir view increasing production costs for farmers will affect the size of the herds and,subsequently, their annual turnover.

The fierce resistance to regulatory taxation can also be explained by the factthat farmers, the Boards and the Ministry of Agriculture have already chosen the optionof industrial manure processing and have already started to contribute financially.Industrial manure processing will only pay if a large supply of manure is guaranteed.Instead, regulatory taxation aims at a reduction of the manure production, which wouldaffect the prospects for industrial manure processing. In short, the use of regulatorytaxation in manure policy implies a shift in strategy, which is rejected by farmers andtheir organizations.

144 Dietz, Tenneer

8.6 WHY ECONOMIC INSTRUMENTS ARE LACKING IN DUTCH

MANURE POLICY

The lack of economic instruments in Dutch manure policy is caused by the aversion ofthe best organized and most powerful agents in the agricultural sector to the use ofeconomic instruments. Of all economic instruments regulatory taxation meets with thestrongest opposition. Farmers do not like paying levies, fearing the substantial increasein production costs and, subsequently, the deterioration of their internationalcompetitiveness. This view is basically shared by the Ministry of Agriculture, the Boardof Agriculture and the feedstuff and meat processing industry, because a substantialdecline in the intensive livestock sector affects all parties with related interests. Inaddition, most politicians striving for improvements in environmental quality simply donot believe that regulatory taxation can be an effective instrument for the reduction ofnutrient leakages into the environment. Finally, the environmental movement perceivesregulatory taxation as a license to pollute, which is rejected in principle

The proposal for marketable manure production rights receives more supportfrom farmers, their organizations and the Ministry of Agriculture. However, until nowtwo issues have prevented their introduction: (I) disagreement about the initialdistribution of manure production rights; and (2) the fear, particularly expressed by theMinistry of Environmental Affairs, that transferable manure production rights willincrease manure production and, consequently, nutrient leakages into the environment,due to the activation of a substantial amount of dormant manure production rights. Theintroduction could especially favour established intensive livestock farmers overnewcomers (young farmers, starting or taking over a farm). Moreover, taking intoaccount all interests at stake, the introduction of transferable manure production rightswill inevitably result in a very complicated regulation, as already is the case with mostregulations in current manure policy.

Support for economic instruments in general can hardly be expected from politicians. Since the end of 1988 environmental issues have gained much attention in Dutchsociety, which was reflected in the campaign for the parliamentary elections of 1989.Politicians from left to right promised to improve the quality of the environment. Theyopt for policy instruments which guarantee the promised environmental quality as faras possible. This requirement makes them choose direct regulations, because theenvironmental effects of 'command and control' instruments are in general much clearerin advance than those of economic instruments. Furthermore, the probably higher socialcosts of direct regulations can be better hidden from the public eye than 'brokenpromises' on environmental quality. Finally, this choice of more direct regulation canbe presented as an apparent effort to abate environmental deterioration.


In contrast to other economic instruments, all agents in the agricultural sectorcompletely accept subsidies as instruments of manure policy. Particularly thedevelopment of technical solutions for the manure problem are subsidized. It is hopedthat newly developed techniques, such as special equipment at farm level and industrialmanure processing, will enable considerable reductions of nutrient leakages into theenvironment without affecting the size of the herds or international competitiveness.

Without considerable subsidies from the government these objectives are unattainable.Stated at the most general level, the conclusion is that in the government as

well as in the agricultural sector many forces work in the same direction, that is, aimingat direct regulation, at the same time holding back economic instruments. To a greatdegree the close cooperation of the regulating government and the regulated sector hasto be attributed to the corporative structure of Dutch agriculture. Politicians and bureaucrats are used to consult leading representatives from the Board of Agriculture and the

Commodity Boards. The Boards also have (restricted) executive power, by which

governmental responsibilities and agricultural interests have been interwoven to a largeextent. 10 The strong identification of bureaucrats of the Ministry of Agriculture with

agricultural interests, in combination with the strong position of farmers' organizationsin the decision making process, support the idea that we are dealing with an 'agrobureaucratic complex' in the sense of Galbraith.

REFERENCES

Algemene Rekenkamer (1990), Jaarrapport 1990, Tweede Kamer, 1990-1991, 21955,nr. 14.

Anderson, G.D. and R.C. Bishop (1986), "The Valuation Problem", in: D.W. Bromley(ed.), Natural Resource Economics, Kluwer, Boston.

Biezen, J. van en N.J.P. Hoogervorst (1989), Stikstofgebruik in de landbouw invergelijking met adviezen, LUW-Werkgroep Landbouwpolitiek, Wageningen.

Bohm, P. and C.S. Russell (1985), "Comparative Analysis of Alternative Policy Instruments", in: A.V. Kneese and F.L. Sweeney (eds.), Handbook of NaturalResource and Energy Economics, Vol. 1, North-Holland, Amsterdam.

10 For this reason the Commission of the EC considers the Board of Agriculture as a governmentalagency. Consequently, the Commission recently rejected the Board's financial contribution to industrialmanure processing, which is collected from farmers in manure surplus regions by way of a levy. In theeyes of the Commission the Board's contribution is an ordinary, competition disturbing subsidy inaddition to the already promised subsidy of 26S million guilders from the Dutch government.

146 Dietz, Termeer

Bromley, D.W. (1986), "Markets and Externalities", in: D.W. Bromley (00.), NaturalResource Economics, Kluwer, Boston.

Centraal Bureau voor de Statistiek (1991), Maandstatistiek voor de landbouw, jaargang39, januari 1991, SDU, Den Haag.

Cramer, J. (1989) De Groene Golf; geschiedenis en toekomst van de Nederlandsemilieubeweging, Utrecht.

Crocker, T.D. and J.F. Shogren (1991), "Preference Learning and ContingentValuation Methods", in: FJ. Dietz, F. van der Ploeg and J. van der Straaten

(oos.), Environmental Policy and the Economy, North-Holland, Amsterdam(forthcoming).

Dietz, F.J. and N.J.P. Hoogervorst (1991), "Towards a Sustainable and Efficient Use

of Manure in Agriculture: The Dutch Case", Environmental and Resource Economics (forthcoming).

Downing, P.B. and K. Hanf, (oos.) (1983), International Comparisons in ImplementingPollution Laws, Kluwer, Boston.

Hartog, J. den (1989), "Mest- en ammoniakproblematiek; een bijdrage aan de oplossingdoor de veevoedersector", in: NOOerlands Studiecentrum, Tweede jaarcongresmestoverschot en ammoniakbestrijding, Wageningen.

Hoehn, J.P. and A. Randall (1987), "A Satisfactory Benefit Cost Indicator forContingent Valuation", Journal ofEnvironmental Economics and Management,14, 226-247.

Hoogh, J. de (1967), Enkele beschouwingen over de economische organisatie van delandbouwproduktie, Inaugural lecture Free University Amsterdam,

Wageningen.Freeman, A.M. (1985), "Methods for Assessing the benefits of Environmental Pro

grams", in: A.V. Kneese and F.L. Sweeney (OOs.), Handbook of Natural Resource and Energy Economics, Vol. 1, North-Holland, Amsterdam.

Frouws, J., and W.T. de Groot (1988), Environment and Agriculture in the Netherlands, Centrum voor Milieukunde Rijksuniversiteit Leiden, Leiden.

International Energy Agency (1988), Emission Controls in Electricity Generation andIndustry, GECD/IEA, Paris.

Kelman, S. (1983), Economic Incentives and Environmental Policy: Politics, Idelogy,and Philosphy, in: Schelling, T.C. (00.), Incentives for EnvironmentalProtection, London.

Klundert, A.F. van de, en P.W.M. Veelenturf (1987), Ruimtelijke visie op intensieveveehouderij, studierapport 42, Rijks Planologische Dienst, Den Haag.

Landbouwschap (1990), Milieu-actieprogramma, Landbouwschap, Den Haag.


Landelijk Milieu Overleg (1989), Naar een duurzaam gebruik van meststojfen; aanzetten

tot een altemariefmeststojfenbeleid, Utrecht.Langeweg, F. (ed.) (1988), Zorgen voar Morgen (Concern for Tomorrow), RIVM

rapport, Samson, Alphen aid Rijn.

Maler, K.G. (1985), "Welfare Economics and the Environment", in: A.V. Kneese and

F.L. Sweeney (eds.), Handbook of Natural Resource and Energy Economics,Vol. 1, North-Holland, Amsterdam.

Ministerie van Landbouw en Visserij (1989), Struetuumota Landbouw, SOU, Den

Haag.

Ministerie van Landbouw en Visserij (1990), Notitie Mestbeleid Tweede Fase, Tweede

Kamer 1989-1990, 21502, nr. 3.

Opschoor, J.B. and H. Vos (1989), Economic Instruments for Environmental

Protection, OECD, Paris.

Pigou, A.C. (1920), The Economics of Welfare, edition 1952, MacMillan, London.

Produktschap voor Vee en VIees (1991), De Nederlandse varkenssector tot deeeuwwisseling, Rijswijk

Stee, A.P.J.M.M. van der (Committee Chairman) (1989), Om schone zokelijkheid;perspectieven voar de agrarische sector in Nederland, Landbouwschap, Den

Haag.

Stichting Natuur en Milieu (1987), Naar een Vestigingswet voor de intensieveveehouderij, Utrecht.

Termeer, C.J.A.M. (1990), "Het landbouwnetwerk onder druk", in: J.A.M. Hufen en

A.B. Ringeling (eds.), Beleidsnerwerken, Vuga, Den Haag.

Wijnands, J., H. Luesink and M. van der Veen (1988), "Impacts of the Manure Laws

in the Netherlands", Tijdschrijt voar Sociaal-wetensc1UJppelijk Ondenoek vande Landbouw, 4, 242-261.

DUTCH MANURE POLICY: TIlE ROLE OF INFORMATION

Anna LAANAgricultural University of Wageningen

9.1 INTRODUCTION

Livestock numbers have increased considerably in the Netherlands since 1950, while theamount of cultivated land and grassland has decreased. The increase is concentrated inthe central, eastern and southern sandy areas of the country. Livestock and manure are

associated products; however, most of the livestock farms do not have enough land onwhich to spread the manure they produce. A manure surplus is defined as the amount

of manure produced at a farm which cannot be applied on the farmer's own land. It

therefore either needs to be spread on other fields in the region, to be transportedelsewhere, or to be processed. The so-called 'intensive' livestock farms (pig and poultryfarms) in particular are land independent and are thus responsible for a large portion ofthe total manure surplus. Livestock fodder contains several minerals, such as nitrogenand phosphate, but only one quarter of these minerals is converted into meat, eggs andmilk. The remainder ends up in the manure. The overfertilization of the land where thesurpluses are deposited causes several environmental problems. These problems are:

1. acidification of soil and air by ammonia emissions;

2. contamination of surface water by the leaching of phosphate emissions;3. contamination of ground water by the leaching of nitrate emissions.Further information on the nature and gravity of these problems is provided in chapter8 of this volume.

The problems caused by the manure surplus demand an environmental policy.The implementation of such a policy is hampered by incomplete information. First ofall there is uncertainty regarding the size and probability of the pollution. Secondly thelevel of optimal targets is uncertain, and thirdly there is uncertainty in regard to theeffectiveness and efficiency of alternative policy instruments. These uncertainties have

to be reduced to some extent before any action can be taken (see van Dijk in thisvolume). Information about problems, targets and instruments can be provided byresearch.

In this chapter I examine whether, and to what extent, information fromresearch in the areas mentioned has affected manure policy. Firstly I present anoverview of the development of agricultural research into the environmental problems

Environmenlll ProIe<:tion: Public or PriVlle Choice, pp. 149-163

150 Laan

originating in the manure surplus (Section 2). Next the research into targets (Section 3)

and instruments (Section 4) will be addressed. Finally, the impact of the resultinginformation on the policy making process will be explored. The chapter ends with someconcluding remarks.

9.2 RESEARCH ABOUT ENVIRONMENTAL PROBLEMS

Manure surplus

Prior to the sixties manure production was hardly experienced as a problem. Then, inthe course of the sixties, an increasing number of agricultural institutes included thestudy of manure problems in their research programs. Commencing in 1969 the firstarticles to discuss the manure problem were published (poelma/Scheltinga, 1969;Henkens, 1969; Lande Cremer, 1970, 1972; Lugt/Goodijk, 1973). As early as 1970 onescientist had stated that "with our modem methods of agriculture we have reached theacceptable limits and sometimes we even already crossed them" (Lande Cremer, 1970).

In 1972 figures about the manure surplus were published for the first time(Henkens, 1972). The author estimated a manure surplus of 3 million tons, which couldbe spread over arable land of farms having a shortage of manure. Accordingly he didinfer a distribution problem, but not a nationwide manure surplus. Furthermore, hepointed out that problems could arise in the future if the intensive livestock sectorremained concentrated in relatively small areas. The manure surplus would then haveto be transported further away, so that the transport costs could become too high. Hetherefore advised a reduction in the mineral content of fodder, so that the mineralcontent of the manure would also decrease.

The environmental movement also signalled the existence of manure surpluses.It expected that the problem of manure surpluses would grow (Algra, 1970; Algra etal., 1972). The environmental movement kept emphasizing that the real problem wasmanure surplus at the farm level, particularly since manure transport, even for shortdistances, was troublesome from an economic point of view. Besides technical solutionsthey recommended that farms without (some) land should be kept away from vulnerableareas. Another suggested solution was that intensive livestock farms would only getpermission to extend their farms if they had enough land to spread the manure (Algra,1975).

Phosphate and nitrate pollution

In the same articles in which the scientists mentioned the manure surplus, they warnedof the possible adverse effects of manure on the environment. For example, LandeCremer concluded that in the short term serious phosphate and nitrate pollution of

Dutch manure policy: the role of information 151

ground and surface water would occur in a substantial number of dumping areas (Lande

Cremer, 1970). Henkens, too, indicated that there could be phosphate surpluses in

certain areas (Henkens, 1969). The environmentalists also warned against the nitrate and

phosphate pollution of the soil and surface water in the long term. They even suggested

that the soil could become unsuitable for agricultural purposes in the future. They

proposed the establishment of manure standards based on the average extraction of the

crops (Algra, 1975; HenselmanslAlgra, 1976).

During the seventies most agricultural scientists held the opinion that phospate

and nitrate leaching was mainly natural, that is to say it was not caused by agriculture

(Molenaar, 1980). They used to say that soil saturation with phosphate could not be

demonstrated. Neither did they see any danger of leaching into the groundwater. In the

beginning of the eighties scientists from the agricultural university of Wageningen

examined the expected phosphate and copper concentrations in the soil of vulnerable

areas at the request of the Ministry of Housing, Physical Planning and Environmental

Policy. I Their conclusion was that phosphate would leach into the groundwater in theshort term. In some areas it would take only five to ten years before the soil would

become saturated with phosphate to the extent that it would leach into the groundwater

(Lexmond et al., 1982). This was the first time that scientists demonstrated the

saturation of the soil.

Soon after this publication more results concerning manure production and

groundwater were published. The public water supply companies raised the alarm

because they noticed that (due to the tightening up of the EC-standard for the amount

of nitrate in drinking water from 100 mg nitrate to 50 mg per litre), the standard in

some wells was being exceeded. In 1983 a provincial environmental departmentpublished a report on nitrate concentration in private wells. In seven out of eighteenwells the nitrate concentration exceeded the health limit (Dienst Milieuhygiene, 1983).In some wells in the concentration areas the nitrate concentration rose from 12 mg in

1969 to 26 mg per litre in 1982. In 1983 the nitrate concentration was 45 mg per litre(Logeman, 1984).

Acid rain

During the eighties the first signals about acid rain appeared. In 1982 scientists

demonstrated that ammonia from the intensive livestock sector contributed to

aci<Jification. Although the agricultural sector was not at first convinced of its

responsibility, after other publications had appeared this fact was conceded. The

I Henceforth the Ministry of Housing, Physical Planning and Environmental Policy will beabbreviated to Ministry of the Environment.

152

Ministry of the Environment pointed out that 90% of the national ammonia emissionwas caused by the intensive livestock sector and that consequently this sector wasresponsible for almost 30% of the acid rain (Aalst/Diederen, 1983).

9.3 RESEARCH INTO OFl1MAL TARGETS

The goals of manure policy are the reduction of the manure deposition and ofacidification of the environment. Targets are necessary to reach these goals. The firstenvironmental goal requires targets that are set in terms of maximum levels of nitrogenand phosphate deposition per unit of land. The second environmental goal requirestargets that are set in terms of maximum levels of ammonia emission.

Phosphate and nitrate poUution: environmental versus agricultural standardsAt the end of the seventies two different standards for maximum deposition wereproposed, namely an agricultural and an environmental standard (Sluismans, 1977; vanDijk, 1979, 1980). The agricultural standard for arable land is the amount of manurewhich maximizes yield without causing damage to crops, expressed in nitrogen fromanimal manure per hectare. This standard varies from 166 to 333 kg nitrogen fromanimal manure per hectare on arable land, depending on crop and soil type. Themaximum allowable amount of manure on grassland depends on the need for potash.Excessively high quantities of potash on grassland may cause head illness to (horned)cattle. The advice is to manure not more than 340 kg potash per hectare.

According to the scientists the standard quantities do not have adverse effects

on soil pollution by nitrate or potash. However, the application of the maximum amountof manure allowed under the standard results in the application of more phosphate thanthe crops need. The result is that phosphate will accumulate in the soil and in the longrun it will leach into surface and groundwater. For this reason the environmentalstandard is based on the phosphate crop extraction, which amounts to an average of 60kg phosphate per hectare. The phosphate standard thus has its origin in environmentalconsiderations.

Manure surplus

The two standards have very different consequences for the calculated manure surplus.A fattening pig produces 1700 kg manure per year, including 11.6 kg nitrogen and 7.4kg phosphate. One hectare of maize needs 200 kg nitrogen according to the agriculturalstandard, which is the amount of manure produced by 17 pigs. According to theenvironmental standard a hectare of maize can receive 60 kg phosphate, whichcorresponds to the manure of 8 pigs. The manure of the remaining 9 pigs can be


considered as a surplus. It appears, then, that if the areas of arable land and grassland,as well as the nature of the planted crops and the average crop needs for minerals areknown, the amount of disposable manure can be calculated. By means of the mineralcomposition of the manure produced per animal, which is known, and the quantity and

composition of the livestock, the manure surplus ofa farm or an area can be determinedeither according to the agricultural standard or according to the environmental one. Forexample, in 1982 in the Netherlands 86 million tons of manure was produced.According to the agricultural standard about 19 million tons had to be considered as asurplus. An estimated 16 million tons of this surplus could be disposed on the land ofother farms. The remaining 3 million tons was not disposable. According to theenvironmental phosphate standard, the manure surplus would have risen to 36 milliontons, of which about 9 million tons could be used elsewhere. Nationwide, there wouldhave been an indisposable surplus of 27 million tons (Ministerie van Volkshuisvesting,Ruimtelijke Ordening en Milieubeheer, 1985).

The surplus problem is in fact even more complicated than I have suggestedabove. Firstly, the surplus is hardly used in the areas with a manure shortage. Forinstance, in 1982 about 1 to 2 million tons was transported from one farm to another.Secondly, it was assumed in the calculations that there was no application of fertilizerat all. But nitrogen deposition from fertilizer is more or less equal to that from animalmanure. So there was even more manure disposition on land than was allowed accordingto the agricultural standard.

Acid rain

In the beginning of the eighties the Dutch government used Swedish results aboutacceptable targets. These results were translated to the Dutch situation. Accordingly, amaximum permitted load of 1800 acid equivalents2 (a. eq.) per hectare per year wasconsidered as a temporary starting point for an abatement policy. This means that theemission of ammonia had to be reduced by a factor 3 or 4. In 1984 the temporary targetwas lowered to 1600 a. eq. from nitrogen oxides and ammonia per hectare per year asa result of new research findings. This is a threshold value before acidification appears,because nitrogen is used by plants as a nutrient. It follows that an ammonia reductionof 70% is deemed to be necessary. Subsequent research from Scandinavia demonstratedthat the deposition level had to be reduced still further to prevent nitrogen leaching intogroundwater and accumulating ammonium in the soil. However, in spite ofparliamentary pressure, the maximum permitted load was not adjusted until 1988. Inthat year it was decided that an interim load of 2400 a. eq. per hectare per year must

2lbe concept ofacid equivalent makes it possible to lump together all acid and acidifying substances.

154

be striven for in the year 2000, of which a maximum of 1600 a. eq. is to comprise

nitrogen oxides and ammonia.

9.4 RESEARCH INTO mE POLICY INSTRUMENTS

The enormous growth of the manure surplus and the resulting environmental effects hasforced the government to take legal measures. The agricultural sector continues toexpect that technical solutions will solve the problems, so that the size of the livestockherd will not have to be reduced (Henkens, 1984; Dekker, 1984).3 Thereforesubsequent agricultural research has focused on manure processing and transportationand on the reduction of the mineral content of fodder. An important goal in manurepolicy is the attainment of a manure processing capacity of twenty million tons ofmanure in 2000. If a processing capacity of 6 million tons is not achieved in 1994, then

a reduction of the intensive livestock farming activity is inevitable. At present theprocessing capacity is less than 200,000 tons of manure.

The economic aspects of manure transportation and processing have also beenexamined. When the surplus is calculated on basis of the agricultural standard the totalcosts of processing are about 200 million guilders per year. These costs will rise to atleast 800 million guilders if the environmental standard is used. This amount can easilyincrease because the assumptions with regard to manure processing are very uncertain(Wijnands, 1985). Post et al. calculated the economic consequences of a policy based

on the environmental standard (75 kg phosphate per hectare) and found that the size ofthe livestock herd must be reduced by 49% (post, 1985). The resulting incomereduction will be 5.5 billion guilders and the reduction of employment will be 110,000jobs. These dramatic figures can be mitigated by a 20 percent phosphate reduction infodder. This would result in a decrease in the size of the livestock herd of 35%, anincome reduction of 4 billion guilders and a reduction of employment of 80.000 jobs.Economic research mainly examines the consequences of technical solutions, such asintroduction of standards. Issues like farmers' behaviour, diffusion of technology or theeconomic aspects of policy instruments are scarcely ever investigated.

There are two kinds of financial instrument used in the agricultural sector.Firstly, there is a general levy on stock or stock feed: this levy is independent ofdemand or of the size of the surplus, so it has no regulatory effect. A second type oflevy used is the surplus levy, which is imposed on farms according to the size of thesurplus. The general levy is intended to meet the costs of manure banks, infrastructural

3 Dekker (1984) even stated that as soon as industrial manure processing could start on the basis ofadequate legislation. then the problem could be solved in 1992.


provisions for the removal, introduction, treatment and processing of manure surpluses.

The levies are not based on research activities.

Acid rainAnother important research theme is the reduction of the acidification caused by

manure. This can be achieved by abatement measures, such as manure injection into

grassland, manure conversion into fertilizer and manure storage in covered sheds. The

research into instruments for the control of acid rain, too, is mainly based on technical

solutions. The instruments used to reduce the ammonia emission are mostly regulations,

such as the rules about obligatory manure injection. The only financial instrument is the

implementation of investment subsidies. Several bases, periods and percentages exist,

without any foundation. Besides, the effectiveness of the different subsidy regulations

has not been examined by research.

9.5 mE ROLE OF INFORMATION IN mE DECISION MAKINGPROCESS

The Ministry of Agriculture, Conservation and Fishery" and the agribusiness have for

a long time sought to deny or minimize the problems. As early as 1972, the Dutch

Central Bureau of Statistics had constructed a model to calculate manure surpluses. By

way of delaying tactics, however, the Ministry blocked the publication of these figures

for many years (Gooijer, 1984). According to the Ministry it was impossible to calculate

manure surpluses as long as the standards were not agreed upon. Although publications

about the manure surpluses appeared in agricultural magazines, the Ministry tried toprevent the publication of these figures in official documents.

In 1974 the Minister of Agriculture sent a report on livestock breeding to

Parliament (Ministerie van Landbouw en Visserij, 1974), as a reaction to the first

signals of an increasing manure surplus. He stated that the increase in livestock farmingwas now coming to an end and that a further increase was unlikely. However, shouldit be the case that the increase were to continue, he expected a surplus to occur in the

eighties. Legal measures were not provided for, because the Physical Planning Act

would, in principle, be sufficient to control the spatial consequences of intensive

livestock breeding by zoning measures around residential areas or vulnerable landscapes.

As it turned out, however, the municipalities and provinces made hardly any use of this

possibility.

• Henceforth the Ministry of Agriculture, Conservation and Fishery will be abbreviated to Ministryof Agriculture.

156

In 1977 the Ministry of Agriculture stated that it expected the number of pigs

to increase from 5.2 million in 1974 to 6.15 million in 1990. The number of poultry

would decrease from 20.2 million to 17.8 million in 1990 (Ministerie van Landbouwen Visserij, 1977). These low forecasts were attributed to the expected low economicgrowth and to the saturation of the markets. In fact there were about 13 million pigs and

90 million poultry in 1990 (Centraal Bureau voor de Statistiek/LandbouweconomischInstituut, 1990). Again there were no legal measures provided for the manure problem.

A few years later the Ministries of Agriculture and Environment argued that

the capacity of the soil to absorb phosphate was so large that even with high manuredoses it would take a long time before phosphates would flush away. Although theymentioned that the absorption capacity of the soil was limited, they did not state what

should happen if the limit was reached (Fosfatennota, 1979).The publications about drinking water pollution and acid rain were published

nationwide. The public became aware of the pollution caused by the agricultural sector.

After these publications the politicians stepped in. Although the Soil Protection Act and

The Manure Act were already in preparation by 1984, the nationwide publications about

the enormous growth of the surplus and the resulting effects on drinking water suppliesand soil fertility in some areas forced the government, in 1984, to impose constraintson the establishment and extension of intensive livestock farms. On November 2, 1984,

the Interim Act on Restriction of Pig Breeding and Poultry Farming was enactedunexpectedly. The objective of the Interim Act was to prevent a further increase of thesurplus. The act was to be valid until January 22, 1987. The preparations were kept

secret because it was assumed that the unexpected proclamation and immediate

implementation of the Act would bring the explosive growth in the affected sectors toa halt. Despite its unexpected proclamation, the Interim Act could not prevent aninvestment wave in the pig sector. This was possible because the law was notimmediately implemented. Indeed, the implementation followed one month after theproclamation, so that farmers could apply for unlimited expansion permits. Besides, thefarmers were allowed to expand their farms by ten percent. The number of pigsincreased by 10% in the period from November 1984 to December 1985 (CentraalBureau voor de Statistiek/Landbouw-Economisch Instituut, 1990). The expectation that,

after the first wave, this development would come to a standstill was not fulfilled. In

1986 the sector grew by another 9%, the poultry sector experienced a growth of more

than 10%. Apparently, there were still unused expansion permits from 1984.

After the Interim Act was firmly in place, the Ministry of the Environment andthe Ministry of Agriculture went to work seriously in order to draw up a Manure Act

and a Soil Protection Act. The point of departure for the two ministries was very

different. The opinion of the Ministry of the Environment was that a standard should

Dutch manure policy: the role of informaJion 157

be laid down which, phased over time, would stop the accumulation of manure

substances in the soil. In addition, this department suggested the use of a differentstandard for areas of outstanding natural beauty than for purely agricultural areas. The

Ministry of Agriculture, on the other hand, acknowledged the seriousness of theproblem, but calculated its impact according to a purely agricultural point ofview. Theycompletely rejected differentiation according to area, because this would create legalinequality between farmers. In the course of time negotiations between the ministriesbegan to focus on the application of the standards and the phasing-in process (Bolsius,1988).

In 1987 the Soil Protection Act and the Manure Act became operative. The

Manure Act regulates the transport and the storage of manure, as well as the levy onmanure production. The Soil Protection Act regulates the manuring of the land.

Aim of the Soil Protection Act is to achieve a general protection level of thesoil in the whole of the Netherlands. The point of departure is that the soil must be ableto fulfil several functions, such as a cultural, a drinking water and an ecologicalfunction. Standards can be used to maintain or achieve multifunctionality of the soil.The government draws up targets for manure disposal to prevent negative effects on soiland groundwater. The use of fertilizer is not restricted because the government assumesthat overdosing of fertilizer will not take place because of its cost price. The targets formanure disposal are applied nationwide and differentiated according to agriculturalapplication. It is forbidden to use more manure per hectare per year than is prescribedby the standards, expressed in kg phosphates. The standards become more severe untilthe final standard date (the year 2(00) is reached. For example, the phosphate standardof a maize field is 350 kg per hectare in the first phase (from 1987 to 1991), 250 kg perhectare in the second phase (from 1991 to 1995) and 175 kg per hectare in the thirdphase (from 1995 to 2(00). In the last phase (from 2000 onwards) the final standard isapplied. This is the standard at which the soil is not polluted with phosphate, namely75 kg phosphate per hectare. The act forbids the spreading of manure during certainperiods, depending on the agricultural use of the soil. The manure must be ploughed inwithin 48 hours after it has been spread on arable land.

The standards which were finally included in the act are higher than theenvironmental standard. Moreover, the standards in the first period of the implementation of the act are even higher than the agricultural standard. The legal standards implythat in the first phase there is only a manure surplus at the farm level (around 14 milliontons) which can be transported to farms with manure shortages. In this phase there isno manure surplus at the national level. In the second phase there will be a manuresurplus at the national level, calculated at 5 million tons of manure in 1991. Thephasing-in process aims to provide time for the development of technical solutions. The

158 Loan

final text of the law did not contain any differentiation by area, but it did include a

differentiation according to the use of the land. The standards are only expressed in kg

phosphate per hectare and not in terms of nitrogen. A serious drawback is that, if the

phosphate content of fodder decreases so that the amount of phosphate in manure is

reduced, more manure can be spread on the land. Nevertheless the nitrogen content canstill be the same, so that more nitrogen will be spread over the land when more manureis used.s

The Manure Act is directed at reduction of the manure surplus with a view to

the ultimate elimination of the manure surplus. There are restrictions to expansion orrelocation of intensive livestock farming, if the manure production exceeds 125 kg

phosphate per hectare per year. Manure production is registered, so that it is possible

to determine the surplus. The farmers, traders and processors of manure are obliged to

keep a manure record. This makes it possible to calculate the required capacity forprocessing and transportation. The transportation of manure is organized by a manurebank. The farmers have to pay a levy on manure production to finance processing and

transportation.It appears from the foregoing description that, in spite of mounting evidence

about the detrimental consequences of the growing manure surplus, it took a long timebefore the government took any measures. The Minister of Agriculture, in the beginningof the eighties, denied that his department knew that there was a manure problem.According to him, at that time there were only marginal indications that manure wouldbecome a large problem and nobody had any idea of the gravity of the pollution caused

by manure. When initiatives were finally taken the proposed measures were not far

reaching. For example, the targets fell substantially short of the environmental standard.Strong political institutions can be viewed as a power bloc which successfully opposedappropriate measures.

Agricultural policy formation is characterized by a corporative structure (seeDietz/Termeer in this volume). Representative groups, gathered in public corporationsare vested with powers to participate in policy formulation and to implement policymeasures. The state profits by increased legitimacy and implementary capacity. Thecorporations gain influence on the preparation and implementation of policy and renderthemselves co-responsible. They secure the compliance of their members while

disciplining their constituency. Negotiations and implementation are both essential to theunderstanding of agricultural corporatism (Frouws, 1985).

5 In 1988 the phosphate content reduced by 6% of the 1986 level, but the nitrogen content increasedby S%.


Consensus building by elites of farmers' associations and relevant state agencies

is an important feature of agricultural policy making. Consensus building is facilitated

by a technocratic ideology. Political choices can be circumvented and solutions can beleft to technical specialists by reducing questions of agricultural policy to technicalproblems. The technocratic character of agricultural policy making explains the considerable weight of professional staff among the agricultural organizations, even at aregional level. These professionals make the farmers' lobby a full-fledged interlocutorof the state. Not only the Ministry of Agriculture but also the central farmers' organizations have their own research institutions. The coordination ofagricultural research takesplace within the NRLO (National Board of Agricultural Research). The NRLO is afederation in which the Ministry, business, farmers' organizations and other interestedparties participate. Environmental organizations and the Ministry of Environment arealso involved.

Ideological concepts are an important foundation stone of agricultural corpora

tism: free entrepreneurship and the general interest of agriculture stand out as the centralideological paradigms. The paradigm of the general interest of agriculture justifies themonopolization of interest representation by the central Board of Agriculture: the Boardrepresents agriculture as a whole, which is perceived as a homogeneous entity. Theexistence of diverging or conflicting interests is denied. Which interests are best servedis mystified. The use of the term 'agriculture' as a denotation of a homogeneity, aseparate economic sector with its distinct, non-industrial characteristics, is greatly

misleading and full of ideological implications. One of these is the conception of

agricultural policy as an exclusive domain reserved to specialists. This conception hassupported the one-sided productivism and expansionism in agriculture which causeddetrimental effects to other functions of the countryside. Promoting the general interestof agriculture implies emphasizing unanimity: keep your front strong and closed.

The members of the permanent committee of agriculture of the SecondChamber of Parliament may also be considered as belonging to the 'Green Front'. Itsmembers are integrated in the agricultural policy community via primal and imprimalchannels. Agricultural policy making is normally left to this permanent committee: othermembers of parliament regard it as a complicated terrain and one for speci<tiists to get

involved in. This is one of the reasons why the agricultural policy community for a long

time stood out as a relatively isolated and closed political subsystem. Intervention byoutsiders is increasing, however, as agricultural production is causing more and morenegative effects in the sphere of pollution and damage to landscape and nature (Frouws,1985).

An important goal of the agricultural lobby is the maintenance of farm income.An important instrument in this respect is the permanent bolstering of productivity. The

160 Laan

environmental measures asked for by the environmental movement are seen as a threatto this effort. The agricultural lobby is also emphasizing that the manure problems canbe solved by technical solutions. Because the Ministry of Agriculture is a part of theagricultural lobby, effective environmental measures could and can be prevented.

9.6 CONCLUSIONS

In the past a considerable research effort has been devoted to the manure problem. Sincethe beginning of the seventies it has been known that there is a manure surplus. Inpublications of that period it was mainly argued that the manure surplus was adistributional problem, which could be solved by manure transportation and othertechnical solutions. Some scientists mentioned the long-term, harmful effects of manuredumping on the environment and soil fertility. However, decisions on targets werepostponed, allegedly because of a lack of information. In the beginning of the eightiesscientists concluded for the first time that phosphate penetration would take place withinfive to ten years and that subsequently phosphate would start leaching into thegroundwater. Such a conclusion is clear and demonstrates the need for the adoption ofmeasures, and forces policy makers to deal with the problem. These results receivednationwide attention. At the same time alarming studies were published, whichdemonstrated the great contribution of agriculture to acidification. Furthermore thepublic water companies were alarmed because of the high nitrate concentration in wells.Under the influence of the environmental movement and the awakening of the public,the tide turned. The discussion got into its stride. Research results about the manure

problem only had political influence when the public became aware of it. Environmentalconsiderations, which started as a limiting condition on agricultural policy, became aseparate concern. Social pressure via press and public opinion was important.

Research results can be used by different interest groups to bring their concernsto the attention of the public. The conflict between agriculture and the environment isgreat in the area of manure policy. Farmers are interested in technical solutions whichhave no effects on the size of the livestock. Environmental organizations are interestedin environmental values. The targets which are used in manure policy are too lenientfrom an environmental point of view. Research into instruments has a strong technicalcomponent. The agricultural lobby is still too powerful to make effective environmental

measures possible. The Ministry of Agriculture is a part of the agricultural lobby andit is able to delay abatement measures in negotiations with the Ministry of theEnvironment.

Dutch manure policy: the role of information

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161

AaIst, R.M. van, en H.S.M.A. DiOOeren (1983), De rol van stikstofoxiden enammoniak bij de depositie vanuit de lucht van bemestende en verzurende stoffenop de Nederlandse bodem, TNQ-rapport R 83/42.

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intensieve veehouderij, Samenvattend Rapport.Dijk, T.A. van (1979), "Maximaal toelaatbare hoeveelhOOen dierlijke mest op bouw

en grasland", Stikstoj, 8:93, 290-296.Dijk, T.A. van (1980), "Schema voor het opsporen en bereken van mestoverschotten" ,

BedrijfsonlWikkeling, 11:6,549-553.Fosfatennota, Tweede Kamer 1978-1979, 15640, nrs. 1,2.Frouws, J. (1988), "State and society with respect to agriculture and the rural

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Agriculture in the Netherlands, CML mOOOOelingen 47, Leiden.

Geleuken, B. van (1990), Mestbeleid en milieu: wet van behoud van ellende?,Kerckebosch BV, Zeist.

Gooijer, G. de (1984), "Ministerie van Landbouw manipuleerde het CBS. Publilcatie

over mestoverschotten jarenlang tegengehouden", Wagenings hogeschoolblad,7:36, 1-2.

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Henkens, Ch. H. (1969), Problemen rond de organische mestproduktie, Rijkslandbouw

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Henkens, Ch. H. (1984), "Biogasbereiding geen oplossing voor het mestoverschottenprobleem", lAndbouwkundig Tijdschrift, 96:4, 4.

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Lexmond, Th.M, W.H. van Riemsdijk, en F.A.M. de Haan (1982), Onderwek naarfosfaat en koper in de bodem in het bijwnder in gebieden met intensieveveehouderij, Vakgroep bodemkunde en bemestingsleer, Wageningen.

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"Mestproblematiek", Tweede Kamer 1984-1985, 18897, nrs. 1-2.Molenaar, J.G. de (1980), Bemesting, waterhuishouding. intensivering in de landbouw

en het natuurlijk milieu, Rijksinstituut voor Natuurbeheer, Leersum.Molhoek, A., en E. Schokker (1984), MeslOverschot, probleem met een luchtje. Bield

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Dutch manure policy: the role of iTifonnation 163

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C. INSTITUTIONS

THE ROLE OF PROPERTY RIGIITS IN ENVIRONMENTALPROTECTION

Dirk Jan KRAANDepartment of Fiscal Affairs

10.1 INTRODUCTION

This paper examines the potential role played by legislation about property rights in the

formulation of environmental policy. There is a need for a fresh look at property rightsbecause the treatment of these rights in recent policy-oriented publications by

governmental agencies as well as in other policy oriented literature is unsatisfactory. Themain reason for this state of affairs is that in these government documents and in theother literature hardly any distinction is made between regulation on the one hand and

legislation about property rights on the other. Yet this distinction is crucial from apositive as well as from a normative point of view. Positively, regulation and propertyrights legislation have different effects on allocation and distribution. As a consequence,it seems plausible that decision making about changes proceeds differently in both areas.Normatively, the advantages and disadvantages of both types of policy are different.

In this paper an attempt is made to clarify the concept of property rights,particularly in the sphere of environmental protection. Section 2 defines property rights

and compares legislation about property rights with regulation. Section 3 examines theallocational and distributive effects of property rights. In view of these effects, thedecision making process is considered. For this purpose it is assumed that policies aresupposed to originate in a representative legislative body. Section 4 discusses tradeablepermits. Such permits allow the production of a fixed output of a negative externaleffect. Tradeable permits are property rights themselves and it will be argued that thisfact has important consequences for the decision making process by which such permitsare established. Section 5 assesses the opportunities for new legislation about propertyrights in view of the preceding results.

10.2 PROPERTY RIGHTS AND REGULATION

The concept of "property right" will be taken in this paper in the sense which is usualin the economic literature, namely that of a subjective right with respect to an economicgood. The reader should note that this definition is wider than that of "ownership" in

Environmental Prolection: Public or Private Choice, pp. 167-179

168 Kraan

the sense of civil law and it includes other rights in rem, such as mortgage, as well aspersonal rights, such as contractual claims.

Property rights are subjective rights in the sense that they belong to somebody,either a natural person or a legal corporation. Accordingly they can be the subject ofcontracts according to civil law. Property rights may also belong to government. Forthe purpose of reasoning about environmental protection, it is useful to distinguishbetween the property rights of government in regard to the private domain and thosehaving regard to the public domain. Public property rights in regard to the privatedomain protect the subjective rights of government according to civil law. This mayconcern buildings, equipment, shares in corporations, etc. Public property rights inregard to the public domain protect the availability of goods for public use, regardlessof ownership according to civil law. Usually such rights are protected by administrativelaw. A road, for instance, can be privately owned but simultaneously it may belong tothe public domain in the sense that the owner is supposed to make it available for publicuse. The public domain also embraces goods that are owned by nobody ('res nullius')or that cannot be owned. One may think of water flowing in rivers and lakes, the air

and the groundwater. In these cases the property right of the government comes downto a right to maintain unimpaired the availability of the good for public use. It deservesattention that, although property rights in regard to the private domain are protected bycivil law, they often depend on criminal law for their enforcement. This is particularlytrue if the rights of many people are violated simultaneously by the same action of aviolator. One can think for instance of a small health risk which is caused by a plantthat pollutes the air. In such cases there is a free rider problem in law enforcement,which makes it necessary to support civil law by criminal law. However, the fact theenforcement of property rights often rests on criminal law must not detract from the truenature of the underlying material norms.

The question now arises in which respect legislation about property rightsdiffers from regulation. Similarly to property rights, regulation will be taken here in thesense which is usual, although not always explicit, in the economic literature.Accordingly, regulation is defined as legislation that constrains the freedom of contract.Contracts typically involve prices and quantities. Often there is one quantity and oneprice: in a sale, for instance. A price is, of course, nothing other than a quantity ofmoney, but the distinction is nevertheless useful. Sometimes there are two non-monetaryquantities, as in barter, and sometimes there are two prices, as in currency exchange.Regulations can be distinguished according to whether they relate to prices or quantities.Price regulation prescribes or prohibits certain prices for certain contracts. One canthink of minimum-wage legislation or maximum-price legislation for gasoline. Quantitylegislation prescribes or prohibits certain quantities for certain contracts. One can think

The role ofproperty rights in environmental protection 169

of the regulation of the labour-market as far as working hours and working conditions

are concerned. A total prohibition of certain transactions, for instance concerning drugs

or child labour, can also be considered as quantity regulation.It appears from the preceding definitions that legislation about property rights

is essentially different from regulation. The existence of property rights in consumption

goods as well as in capital goods is a precondition for the existence of a marketeconomy. Regulation, on the other hand, is an infringement of the market economy for

the sake of interests that are supposed to require public protection.

A related aspect of this difference is that property rights, in contrast toregulation, may originate in natural law, and hence in morality or in the moral and

social codes of a particular society, rather than in codified legislation. Of course, in a

positive theory of law, the concept of 'subjective right' is very much intertwined with

that of the sovereign state (Hart, 1961). However, protection of rights by the sovereign

state does not always require legislation. To the extent that property rights are embedded

in natural law, the role of legislation can in principle be limited to that of specificationand demarcation in special cases. The Anglo-Saxon tradition of 'common law' is basedon this possibility. According to this tradition, civil law is codified in legislation onlyby exception. The need for legislation only arises when society is confronted with new

problems, for instance those flowing from technological developments, or when

government explicitly decides to change the demarcation of property rights vis-a-vis

existing unwritten rules. For the rest the protection of property rights is entrusted to the

courts. In the continental tradition, civil law is largely codified, but it may be argued

that in that tradition too, the role of the courts in the protection of property rights isrelatively great, due to the paramount influence of nonlegal codes of conduct.

The fact that property law differs from regulation in its moral and socialconnotation does not necessarily mean that it belongs to the body of rules which inrecent literature has often been denoted as the 'economic constitution' of society. Thelatter body of rules describes the tasks and organization of government and theprocedures for public decision making. In most western societies there exists awidespread conviction that constitutional rules must be discussed and decided on the

basis of moral principles rather than on that of private interests. This conviction is basedon the idea that the viability of democratic government depends crucially on a general

agreement about the basic decision rules. This implies, among other things, that in

constitutional matters minorities must not be overruled. In the case of property rights,however, no such conviction can be said to prevail. In reality, legislation about property

rights is mainly decided by simple majority rule in most democratic societies and the

propriety of such a practice is hardly disputed. The fact that such decisions are oftendebated in weighty moral terms, especially where environmental pollution is concerned,

170 Kroon

cannot be attributed to any concern for the interests of minorities. On the contrary, inthe area of environmental pollution it is often alleged that a minority makes use ofinadequate legislation in order to further its own interest at the expense of the majority.The moral aspect of such debates is due to the foundation of property rights in non-legalcodes of conduct, rather than to the constitutional nature of the rules concerned.

10.3 THE ECONOMIC EFFECTS OF CHANGES IN PROPERTY RIGHTS

It seems appropriate to commence an argument about the economic effects of changesin property rights by reference to the well-known Coase theorem (Coose, 19(0).

According to Coase, a change in a property right typically involves a differenttreatment of the negative external effect of some production process. Such change mayeither amount to a less lenient treatment, in the sense that the admissible output level

of the effect is decreased, or a more lenient treatment, in the sense that the admissibleoutput level is increased. Basically, the Coose theorem states that under certainconditions such changes have only a limited allocative effect. This is the case because

they induce an adjustment process that will largely restore the previous allocation. Inparticular, in the case of a decrease of the admissible output level, the producers of theexternal effect will pay the affected producers or consumers for any excess of theadmissible level that they desire, and in the case of an increase of the admissible level,the affected consumers or producers will pay the producers of the effect for anysuppression of the effect below the admissible level that they desire. The resultingallocative change is exclusively due to the income effect resulting from the monetary

transfers involved in these payments. Although the distributive effects may beconsiderable, allocation remains Pareto optimal. Indeed, property rights legislation hasno influence at all on allocative efficiency, but is exclusively concerned withdistribution. In contrast, regulation has a direct impact on allocation and therefore onallocative efficiency. J

Although the Coase theorem provides a useful starting point for the analysis,it is quite obvious that its implications are only partially relevant for environmentalpolicy. There are two main reasons for supposing that legislation concerning admissibleemission levels of pollutants will have more impact on allocation than may be suggestedby the Coose theorem.

I The different effects of regulation and property rights legislation on allocation will in tum influencethe decision making process. For the case of property rights legislation the decision making process willbe addressed below. For the case of regulation see Buchananrrullock 1975.

The role ofproperty rights in enviro1l17lelllal protection 171

The first reason is that negative external effects from pollution usually affect

many people simultaneously. This implies that such effects have the character of a

'collective bad' and that their suppression beyond the admissible output level inducesa free rider problem on the side of the affected producers and consumers. This impliesthat none of the affected parties has an incentive to reveal their true demand price whenthey bargain individually with the producer for the output-reduction of the externaleffect. If the government does not intervene on behalf of the affected parties, this willlead to a non-optimal situation in which the marginal social cost of the good to whichthe external effect is attached as a joint product - that is to say the marginal cost of thegood plus the sum of the (negative) marginal values of the external effects to all affected

parties - exceeds its market-price (Baumol/Oates, 1975, chapter 3).

An analogous free rider problem occurs if a producer is willing to pay for theright to exceed the admissible output level of the external effect. In that case none ofthe affected parties has an incentive to reveal their true supply-price when they bargainindividually with the producer for the output-expansion of the external effect. Again,this is due to the character of the external effect as a 'collective bad'.

If either of these situations prevails and if, for one reason or another, thegovernment does not intervene, the legislative change may have an impact on allocationand either improve or worsen allocative efficiency.

However, government may intervene. Indeed, the presence of collective goods

or bads is generally considered as a basic motive for government intervention. Thequestion then arises whether such intervention may restore the relevance of the Coase

theorem. Answering this question requires a model of public choice. Below I shall makeuse of a simple model of legislative decision making and argue that public interventiongenerally does not restore the relevance of the Coase theorem. This argument amountsto a second reason to suppose that property rights legislation has an influence onallocation and that the presence of a negative external effect induces a non-optimalsituation.

Consider first of all the case in which property rights legislation is relativelylenient so that the parties affected by an external effect are willing to pay for thereduction of its output beyond the admissible output level. This situation is illustratedin Figure 1.

172

p CD

Kroon

r q 5 x

Figure 1 Demand for and supply of reduction in output of a negative external effect

The horizontal axis measures the reduction in output of the external effect (x) and thevertical axis measures the price that the affected parties are willing to pay for alternativeoutput levels. The origin of the x-axis may be assumed to indicate the current outputlevel of the external effect. Curves D., D2 and D3 indicate the demand functions of theaffected parties and curve S the supply function of the producer. Note that the x-axismeasures output reduction rather than output of the external effect so that the demandcurves exhibit the usual downward slope and the supply-eurve the usual upward one, inspite of the fact that the external effect is a 'bad' rather than a good. Note, furthermore,that the intersection of the demand curves with the output axis occurs before the pointat which the external effect is entirely suppressed because very low outputs of theexternal effect are acceptable to the affected parties. Since output reduction of theexternal effect is a collective good, the demand curves have to be added up verticallyin order to determine the optimum output level. The CD curve indicates the collectivedemand function so that the optimal reduction level is q. If property rights legislation

is lenient, this level will generally be higher than the required level (namely theadmissible output level of the external effect). If the latter is at r, the optimum level will

The role ofproperty rights in environmental protection 173

generally not be attained by voluntary action as a consequence of the free rider problem.

Indeed, if the affected parties were to bargain individually with the producer, none ofthem would be willing to pay for any output reduction beyound the required level. Theoptimum level can be attained, however, if the government steps in and establishes asubsidy of Pq per unit of output reduction beyond the required level.

Consider next the case in which property rights legislation is relatively strict,so that the producer of the external effect is willing to pay for a larger output thanadmissible. Suppose, for instance, that the required reduction level (namely theadmissible output level of the external effect) is at s, rather than at r. The supply curveof the producer now has to be interpreted as a demand curve and the demand curves ofthe affected parties have to be interpreted as supply curves. In this situation, too, thereis a free rider problem. Indeed, if the producers were to bargain with the affectedparties individually, none of them would be willing to accept a lower reduction levelthan that required by prevailing legislation. Again, the optimum reduction level can beattained by government intervention. To this purpose the government must establish aregulatory tax of Pq per unit of output reduction which falls short of the required level.Such a tax was firstly proposed by Pigou2 and is known as a "Pigovian tax".3

The question now arises as to how large the chances are that real governmentswill establish optimum subsidies and optimum Pigovian taxes. If they do not and if,moreover, they tend to set subsidies on output reduction of negative external effects andtaxes on output expansion of such effects in such ways that the resulting outcomes differsystematically from one another, it can no longer be said that property rights areirrelevant to allocation. Let us therefore examine what public choice theory can tell usabout this matter.

Assume that both subsidies and regulatory taxes have to be established by adirectly elected legislative body and that the producers of each external effect arerepresented as a minority in this body. Alternatively, it may be assumed that there existsa perfect market for the good to which a negative external effect is attached as a jointproduct, so that subsidies for output reduction of the effect, or regulatory taxes onoutput expansion of the effect, ultimately benefit or hurt the consumers of that good

2 Pigou did not explicitly recognize the character of the negative external effect as a 'public bed'.He saw, however, that in the presence of a negative external effect, optimum allocation could be restoredif the marginal cost of the tax to the producer were to equal the marginal benefit of the output reductionto the average affected party (the implicit underlying assumption being that all affected parties would haveidentical preferences or cost structures, as appropriate).

) The question may be asked whether a Pigovian tax is enough to induce optimum allocation if thetax proceeds are not transferred to the affected parties. The answer is that it is: although transferaccording to individual marginal sacrifice would be fairer from a distributional point of view, it wouldnot improve allocation.

174 Kroon

- via its price - and that those consumers are represented as a minority in the legislative

body. Assume, furthermore, that each external effect affects the entire electorate.

Assume, too, that the legislative body decides on more than a single subsidy or

regulatory tax simultaneously. Finally, assume that the subsidies are financed from taxes

that are paid by the entire electorate according to ability to pay and that the revenues

from regulatory taxation are returned to the entire electorate in the form of general tax

relief according to the same principle.

According to this model, each subsidized minority has an interest in extracting

a larger subsidy than is necessary to compensate for the costs of output reduction. This

is the case because to each minority the subsidy is larger that its contribution to the tax

price of the subsidy. This implies that minorities will seek to establish a majority

coalition, which increases the subsidies to each of its members. Of course this coalition

may also embrace minorities that seek to enlarge other minority benefits, such as the

output of minority-group goods.4 As soon as a majority coalition of minorities is

established, the size of the subsidies no longer depends on the preferences of the

electorate for the negative external effects, but rather on the bargaining results within

the coalition of subsidized minorities. In general this will lead to a gradual increase in

the size of the subsidies beyond their optimum level.

An analogous argument applies to regulatory taxation. Each minority that is

subject to regulatory taxation has an interest in reduction of the tax below the optimum

level. This is the case because for each minority the burden from the regulatory tax is

larger than its share in the general tax relief that its proceeds make possible. This

implies that minorities will seek to establish a majority coalition which reduces the

regulatory taxes paid by each of its members. Again, this coalition may embrace

minorities that are seeking other minority benefits. In this case too, the final result will

be that the size of regulatory taxes will be dependent on the bargaining results within

the coalition of minorities rather than on the preferences of the electorate for the

negative external effects.

An additional feature of the present model may be that a multitude of coalitions

of minorities may be operative simultaneously. This would tum the model into a socalled 'log-rolling model' in which every minority interest in subsidy expansion and

regulatory tax reduction is represented in some majority coalition and in which all

subsidies are too high and all regulatory taxes are too low.

Finally, it is noteworthy that both the singular majority model and the log

rolling model need some stability enhancing mechanism in order to avoid continuous

4 A group good is a collective good that benefits only a limited member of consumers.

The role ofproperty righls in envir01lJ1lentai protection 175

defections from existing coalitions to rival ,coalitions. In the public choice literature

various hypotheses concerning such mechanisms have been proposed.S

10.4 TRADEABLE PERMITS

The argument in the preceding section assumed that each external effect is produced by

a single producer. In such a situation it is possible to protect the property rights of

potentially affected parties by setting an appropriate admissible output level for the

external effect. Such a maximum output level can be achieved by a choice of adequate

production techniques. It certainly does not require output reduction of the good to

which the external effect is attached as a joint product. This is important because any

legislation that would require the latter would have the character of regulation and could

not be considered as property rights legislation.

If the external effect is produced by more than a single producer,however, the

setting of a total admissible output level for the external effect, raises the question of

division among the individual producers. Regardless of the fairness of the criteria to be

used for this purpose, the resulting allocation will in general not be efficient. This is the

case because the costs of output reduction of the external effect will generally differ

between producers. Neither is it efficient in this situation to set uniform standards for

production techniques. Firstly, such standards would have to be adjusted continuously

in order to keep the total admissible output of all producers at a constant level, and

secondly it may not be efficient to set uniform standards for all producers in view ofdifferences in cost structure.

In order to realize an efficient solution when there is more than one singleproducer of a given external effect, there are in principle two possibilities. The first isa regulatory tax on the total output of the external effect (starting at the first unit). Thesecond is the enactment of a total admissible output level of the external effect in

property rights legislation and the issue of tradeable permits in order to distribute thistotal among the producers (Dales, 1968).

Both regulatory taxation and tradeable permits can be considered as means by

which allocative efficiency may be attained on the basis of a given property rights

legislation. From a technical point of view there is but one essential difference between

5 For a survey see Kraan 1990.

176 Kroon

both instruments:6 tradeable permits are freely alienable so that they may be purchasedfrom other households than government (except possibly at the time of issue).7

In a seminal paper Weitzman has argued that although, in the theoretical caseof complete information, the instruments of regulatory taxation and tradeable permitsare substitutes in the sense that they can both be used to attain allocative efficiency, in

practice the effects of both instruments will be different, due to uncertainty (Weitzman1974; see also Theeuwes in this volume). Weitzman's paper presents a formulation ofthe conditions concerning the marginal social cost and benefit functions of emissionreduction under which one or the other policy instrument may be preferred. In this

connection the marginal social cost function of emission reduction can be interpreted asthe horizontal sum of the individual supply functions in the sense of Figure 1 and themarginal social benefit function as the vertical sum of the (compensated8) individualdemand functions in the sense of Figure 1. Weitzman has shown that if the marginalsocial cost and benefit functions of the external effect are linear, but if the position (axisintercept) of the curve is unknown, then tradeable permits are preferable if the benefitcurve is steeper than the cost curve and vice versa. This result follows from the fact thatunder the conditions mentioned an equal error in the estimation of the position (axisintercept) of the cost curve results in a larger welfare loss when a regulatory tax is usedthan when tradeable permits are used. On the other hand, an equal error in theestimation of the position (axis intercept) of the benefit curve makes no difference withrespect to the size of the welfare loss. In this formulation welfare losses are measuredin comparison to the situation of allocative efficiency.

The question now arises of what can be said about the relative efficiency ofregulatory taxes and tradeable permits if the assumption of welfare maximization by anomniscient and omnipotent policy maker is dropped and substituted by a more realisticset of assumptions about political objectives and public choice.

6 In practice there is usually a second difference, namely that the emission right originating in the taxpayment is annual, whereas the tradeable permit is permanent. However, this difference is not essential.

7 An important consequence of this difference is that a regulatory tax contributes to the total taxburden, whereas tradeable permits do not (provided that they are distributed freely at the time of issue).Note, however, that the logic behind this consequence is neither that tax payments are 'obligatory foreverybody' (regulatory taxes are not obligatory by definition because they apply exclusively to harmfulbehaviour) nor that regulatory tax payments are 'unilateral'. In fact, in both cases the production rightis the service in return for the payment. The crucial point is rather that the cost of this service is closeto zero: its price consists entirely of rent. For the same reason a public retribution is not a tax: here theprice is supposed to equal the (marginal) costs.

8 In order for this interpretation to be allowed the demand functions must be compensated for incomeeffects, because then they can be considered as marginal evaluation functions.

The role ofproperty rights in environmental protection In

In the preceding section it appeared that a simple positive model of legislativedecision making may lead to the conclusion that regulatory tax rates are generally toolow. It would be interesting to know what such a model would predict about the issueof tradeable permits. Analogy suggests that the number of permits would be too large,resulting in a similarly excessive output level of the external effect. It seems to mehowever, that such an analogy is not warranted. The reason is that the decision abouta total admissible output level is an essentially different type of decision than the oneabout the rate of a regulatory tax. The difference is that the former decision isconcerned with the establishment of a property right and the latter with its trade (afterthe right has been established). Remember that in the case of regulatory taxation, theexternal effect is in principle prohibited. The tax payment must therefore be consideredas a price that the government charges for the right to impair an existing property right,on behalf of the owners (affected parties). In contrast, the determination of the totaladmissible output level has regard to the demarcation of the property right itself. It

seems plausible that in legislative bodies the latter decision is mainly evaluated anddiscussed on the basis of technical and moral considerations. The decision about the taxrate, on the other hand, is mainly evaluated and discussed on the basis of privateinterests and preferences. This leads to a quid-pro-quo bargaining process. Theconclusions of this argument can be summarized as follows:a) if decisions about regulatory taxation or tradeable permits are taken by a

representative legislative body, is seems plausible that neither instrument can induceallocative eficiency;

b) since the determination of a total admissible output level for an external effect is adecision about the demarcation of property rights, it may be argued that arepresentative legislative body will base its decision to a large extent on technicaland moral considerations; in contrast, the decision about a tax rate is a decisionabout a price for a public facility (namely the allowance of an external effect), sothat it seems plausible that this decision will largely be based on private interestsand preferences;

c) the issue of tradeable permits will probably not induce allocative efficiency becausethis instrument does not provide for automatic output reduction or expansion of theexternal effect, once the admissable output level is determined; however there is nobias in this misallocation in the direction of either overly small or overly largeoutputs; in contrast, a simple model of legislative decision making as developed inthe preceding section, predicts that tax rates will generally be too low and thatoutput will be too large.

178 Kroon

10.5 mE SCOPE FOR PROPERTY RIGHTS

From a technical point of view the scope for property rights is large. If it were tobecome accepted that, if property rights legislation and regulatory taxation are bothfeasible from a technical point of view, the former instrument is generally preferable

from an economic point of view, the scope for property rights would indeed becomemuch larger than that for regulatory taxation.

Of course, it is necessary to reason carefully about technical feasibility in thisrespect. Basically, I see four different areas where property rights legislation could beapplied with beneficial results.

The first is the area where negative external effects are not public but private'bads'. In this case the effects caused by different producers are not cumulative and itis not inefficient to establish uniform product standards. One may think here oflegislation concerning agricultural and industrial food production (use of pesticides andpreservatives, use of hormones in cattle breeding, etc.) and legislation concerning theprevention of noise in machinery, vehicles, airplanes, etc.

The second is the area where it is possible to tum a negative external effectfrom a public into a private 'bad' through appropriate property rights legislation.Accordingly, the prevention of the effect will be turned from a public into a privategood. For instance, by a prohibition on the discharge of wastewater elsewhere thanthrough the public sewage system and by the simultaneous prescription of meteringsystems per household (measuring either sewage water or water consumption as a proxy)it is possible to tum the purification of sewage water into a private service that can beprovided on a commercial basis. The same holds true for the removal and treatment ofother agricultural, industrial and domestic waste materials (for instance manure!).

The third is the area where prevention costs do not deviate substantiallybetween producers so that product standards can be applied without detrimentalconsequences for allocative efficiency. Here one can think of catalysts for cars, thecomposition of lifestock fodder, the treatment of dangerous substances and gases in ahomogeneous competitive branch of industry, etc.

The fourth area is the area where prevention costs do deviate substantiallybetween producers, so that systems of tradeable permits have to be introduced in orderto provide an efficient division of the admissible emission quota among the producers.Here one can think of the emission of harmful substances into the air and the surfacewaters.

This paper has provided some arguments for the hypothesis that, in all of theareas mentioned, property rights legislation may provide an efficient solution toenvironmental problems, especially in comparison to regulatory taxation. Special care

The role ofproperty rights in enviro1l11leTllal protection 179

is needed to ensure that property rights legislation does not tum into market regulation

in its factual implementation or impact. As we have seen the boundary line between

both instruments is sometimes thin. Under this condition, however, the scope for

property rights in environmental protection is large and the future of this policy

instrument looks bright.

REFERENCES

Baumol, W.J., and W.E. Oates (1975), The theory ofenviro1l11leTllal policy, Cambridge

University Press, 2nd ed., Cambridge.

Buchanan, J.H., and G. Tullock (1975), "Polluters' profits and political response: direct

controls versus taxes", American Economic Review, 65,139-147.

Coase, R.H. (1960), "The problem of social cost", Journal ofLaw and Economics, 3,1-44.

Dales, J.H. (1986), Pollution, property and prices, University of Toronto Press,

Toronto.

Hart, H.L.A. (1961), The concept of law, Oxford University Press, Oxford.

Kraan, D.J. (1989). Budgetary Decisions, Eburon Publishers, Delft.

Pigou, A.C. (1920), The economics of welfare, MacMillan, London.

Weitzman, M.L. (1974), "Prices vs. Quantities", The Review ofEconomic Studies, 41,477-491.

THE ECOLOGICAL SOCIAL CONTRACT

Jos DE BEUS

University of TwenteUniversity of Amsterdam

11.1 INTRODUCTION

The natural environment of human beings often connotes publicness. Ecologists arguethat an elimination of the current ecological catastrophe is a public good at local,regional, fluvial, continental or global levels; consider for instance, the dumping ofpoisonous waste, eutrophication, deforestation, acidification or ozone layer depletion.At all these levels the common interests of large numbers of human beings are at stake,including the interests of other sentients derived from these interests. 1 Economists stressthat the solution of urgent environmental problems will buttress public opulence,Paretian efficiency or social welfare in the long run. And political scientists state thatthe green movement differs from old social movements, since the old "us against them"perspective is replaced by an "all of us" perspective (Offe, 1990, p. 234). Many ofthese scientists argue that the contemporary ecological crisis has been brought about bya lack of coordination and a conflict about the distribution of the costs of coordinationbetween persons and corporate actors: the ecosystem has attained a state of anarchy.That may very well be the moment for salvation of the Hobbesian Leviathan, theopposite of the Zeitgeist of libertarianism, regional politics, and global capitalism(Siebert, 1990, p. 18).

All this suggests that a contractarian approach to environmental politics will befruitful. It so happens that the constitutionalist framework of contractarianism hasbecome the dominant alternative to the utilitarian framework of welfarist functionalismin contemporary welfare economics (SugdenlWeale, 1979; Frey, 1983; Buchanan, 1987,1989; Hamlin/Pettit, 1989, part II; Mueller, 1989, part V; Hahnel/ Albert, 1990, ch.1). The central conrractarian claim implies that any instrument of environmental policyof any authority will be effective if, and only if, it is based upon certain generally

The author gratefully acknowledges the comments by Herman Vollebergh (Erasmus UniversityRotterdam).

I Dryzek describes five other features of the ecological problem. besides its collectiveoess. namely.complexity. non-reducibilily, variability. uncertainty and spontaneity (Dryzek. 1987. pp. 28-33).

Environmellla1 ProIe<:tion: Public or Private Choice, pp. 181-20S

182 De Beus

agreed-upon rules of conduct. In this chapter I examine the relevance of social contracttheory to the ecological issue. In Section 2 a distinction is drawn between six

conceptions of an ecological social contract. In Section 3 the question is raised of whichmoral rules with respect to the exploitation of nature can be derived from moderncontractarianism. Modem contractarianism includes the theories of Rawls, Buchanan,Gauthier and Kolm (cf. Lessnoff, 1986, 1990). In Section 4 I discuss the contributionof four contractarian methods to Dutch public policy. These methods, which arecomplementary or substitutive, are constitutional law, political consensus, corporatismand bureaucratic agreement. Section 5 presents a dismal conclusion regarding thepractical meaning of the central contractarian claim to environmental policy. It shouldbe emphasized that my conclusion cannot be final, since final conclusions need to followfrom:1. a comparison of contractarianism with other approaches to ecological scarcity, like

utilitarianism, Paretian cost-benefit analysis, human needs theory, libertarianism(e.g. Nozick's principle of compensated acquisition of nature), and communitarianism;2

2. a comparison of procedures of environmental policy making with some relativeweight of legitimate contractarian methods, between different countries;3

3. a comparison of the outcomes of environmental policy making in different areas(nuisance, air, surface water, soil and groundwater, noise, radiation, energy andwaste) and the causal relation between agreement on rules and effectiveness. 4

In this chapter, I do not aim nor claim to present such a threefold comparison, but onlyto provide a critical survey of ecological contractarianism.

2 Cf. Parfit (1985, part four), Sagoff (1988), Lee (1989), Naess (1989), Xenos (1989) and PearcelTurner (1990, ch. 15).

3 Cf. Wea1e (1990) on German corporatism and British individualism and Wilson (1990, pp. 31-34)on the Green challenge to different systems of business politics. Also, the Dutch National EnvironmentalPolicy Plan of 1989 may be compared with California's South Coast Air Quality Management DistrictPlan of 1989. They are equally ambitious and cover urban areas of similar scale. See Alan Weisman,L.A. fights for breath, The New York Times Magazine, July 30, 1989.

• Cf. Bressers and Coenen (1990) on the evaluation of the effectiveness of Dutch environmentalpolicy.

The ecological social contract

11.2 WHAT IS A SOCIAL CONTRACT?

183

There are many settings of social decision making which can be conceived as socialcontracts. I make a distinction between six settings for a social contract (SC).5 The firstsetting is the foundational SC, which concerns the primary rules for the formation ofhuman community and social order. These rules may also refer to the naturalenvironment, as the Lockean constraint on legitimate land appropriation "enough andas good left in common for others" makes clear.6 The relation of a foundational SC tohistorical fact is controversial. Are our society, culture and state really based upon aprimitive agreement of all our ancestors?

In order to preempt controversy, many adherents of modern contractarianismprefer the setting of a hypothetical SC. Which social contract can or will be the outcomeof bargaining between individuals, assuming that these individuals are moral equals whoare sufficiently free, rational and informed? In political theory the hypothetical SC isa model that supports certain legitimizations and evaluations of the political order(Kymlicka, 1990, pp. 58-71, 126-128; and KukathasJPettit, 1990, ch. 2). In welfareeconomics the hypothetical SC is a model that supports certain propositions about theefficiency of public policy in a broad sense. The distinction between a foundational SCand a hypothetical one is partly connected with the distinction between agreements fromthe past and agreements in the near future (emerging contracts).7

The third setting is constitutional-democratic decision making. The institutionsofconstitutional democracy in the Western world (bicameral legislature, judicial review,and so on) are various and complex, but the setting itself is clear enough. A constitutional rule is a basic legal rule. It is the outcome of qualified or rights-based restrictedmajority decision making. The qualifications concern optimal majority. The restrictionsconcern the rights of citizens and the rules for non-tyrannical legislation(Elster/Slagstad, 1988). Both these limits to majority rule are based upon meta-rules,

S I will not discuss the symbolic SC. One example is the International Climate Alliance (1990), anagreement between European cities and native peoples in the tropical forests to halve the emission ofcarbon dioxide in 2010.

6 This proviso has been widely discussed and reconstructed in recent literature (Nozick, Olivecrona,Steiner, Gauthier, Kolm, Cohen, Musgrave, Christman, Waldron, Arneson).

7 Kolm (1985, pp. 121-124, 311-312) introduces a latent SC. He distinguishes betweenhypothetical/real and foundational/permanent in order to define a latent SC: Non-real; permanent;implicit; potential; and observable - as far as its effects are concerned - if two methods are used in thereal world, namely, the economic calculus in public economics (the gradual realization of Paretianoptimality) and the political process (the gradual realization of the liberal conception of the public good).The gist of this vague and hybrid conception seems to be the process-dimension of a SC.

184 De Beus

sometimes called rules of recognition, which provide the separation between theexecutive, legislative and judicial branches of government and the system of checks andbalances in which they operate. Now, constitutional rules are basic legal rules which aremade by elected assemblies of representatives and/or high committees of judges. Theconstitutional SC may be defined as the set of these rules; for example, the existingconstitution plus constitutional jurisprudence.

The fourth setting is political consensus. Consensus is a combination of patternsof agreement in public opinion, voting behaviour of the mass electorate, party strategy(especially the convergence of competing political parties towards the position of themedian voter) and voting behaviour of representatives in parliament. These patterns arenever complete and unambiguous, as is demonstrated by the American example ofcentrepolitics with political apathy among poor citizens and political exclusion of illegalimmigrant workers. However, the patterns of agreement can fit the kind of legitimacyrequirements that contract theorists bring forward by means of idealization of theprocess of formation of political consensus. In the instrumentalist approach to consentthe dominant model is the democratic acceptance of coercion as a method of protectingcommon private interests. The interaction among voters (referendum) and betweenvoters and professional politicians (representation) leads to majority-based legislationwhich can, under certain conditions, be interpreted as public self-control (Van den Doel,1979, ch. 3; Elster, 1984, ch. II; and Schelling, 1984, ch. 4). In the expressivistapproach to consent the dominant model is the democratic discovery of the public interest. In their role as citizens individuals will reveal public judgements, that is,judgements with respect to the nature of the common good, the competence ofpoliticians who have to implement a generally agreed-upon conception of the commongood, and the content of public policy that follows from the common good (Cohen,1986); Coleman, 1988, ch. 12; Hamlin/Pettit, 1989, parts I, III; Brennan/Lomasky,1989; and Brennan/Pettit, 1990). The democratic SC may be defined as a duly idealizedform of political consensus. A widely supported and long-established parliamentarystatute is a visible part of such a contract. The New Deal is a classic case.8

The fifth setting is the corporative SC. Corporatist compromise is a settlementbetween representative elites within separate social groups, e.g. capitalists and workers,and between these elites and the political elite that represents the state. The settlement

8 MacNeil (1980) distinguishes between a discrete and a relational approach to the social contract.The interpretation of the New deal as a constitution fits in best with the relational approach. In therelational approach personal communication is frequent, the number of contractors is large, solidarity ispresent and concerns the maintenance of good relations, future cooperation is inevitable, open and globalarrangements are necessary, and implementation frictions are normal. The discrete contract is exactly theopposite, in terms of these and all other features that MacNeil mentions.

The ecological social contract 185

may contain a formal, even written agreement, but the notion of compromise may alsorefer to a protracted informal process of Lijphartian accommodation.9 In other words,

there may be a linkage between the fourth and the fifth setting (cf. Przeworski, 1985;and KinglWickham-Jones, 1990).

The last setting is the administrative SC. This is a settlement between the ad

ministration and the business community (firms, industries, employers' associations,etc.), based upon the principle of voluntary agreement, that is, policy-making byconsultation, cooperation and non-committal covenants (Goodin, 1986). Theadministrative SC is a form of soft public policy that promotes self-regulation among

producers. It is intended to preempt hard public policy (taxation, regulation). It shouldnot be confused with the Coasian setting of bargaining in the private sphere andminimizing the harm caused by failures in private agreements or removing theimpediments to such agreements by the slate (Coase, 1988; and Cooter/Ulen, 1988, pp.99-108).

Contractarian language and theory are often applied to social policy, forinstance, Dahrendorfs contractarian solution of the modem conflict between a majorityclass and an underclass (Dahrendorf, 1985, 1988). They can also be applied toenvironmental policy. 10 A foundational SC leads to a basic structure of property rightswith respect to natural resources, Le. populations like plants and animals, stocks like

mineral raw materials and fossil fuels, and flows like water and wind. The mostimportant decision is the choice between collectivization and privatization. It is plausiblethat the contractors will take account of the impact of the use of property rights on thepreservation and conservation of the natural capital stock into account (cf.

Pearce/Turner, 1990, chs. 3,20, on the optimality of certain conservation rules for thesustainable economy). A hypothetical SC leads to a socially rational environmentalpolicy, defined as a combination of democratically approved goals of the executivebranch; the best public means to realize these goals, given the beliefs; the best beliefsof policy-makers, given the available evidence; and the best public evidence, given thecosts of information. Optimal environmental policy will have transparent efficiency andequity dimensions. It is also likely that optimal environmental policy in country A with

9 Lijpbartian accommodation means that divisive issues are settled and settlements are between selfcontained and mutually isolated blocs with a low level of consensus between them and with leaders whoare convinced of the need for negotiating settlements, for which they are responsible. The leaders followseven rules. namely, a pragmatic approach to politics, an agreement to disagree (political tolerance),summit diplomacy, proportionality ofassignment of political goods to the blocs. depoliticizatiOll, secrecyand the acceptance of the government's right to govern. Cf. Lijpbart (1968), Van Scheodelen (1984).DaalderlIrwin (1989) and Van den Berg (1990). Accommodatioo fits in with Kolm's conceptioo of latentunanimity and the relational approach to the social contract. See notes 8,9.

10 Another topical application is Forte (1985) on European integration.

186 De Beus

a heavily burdened natural capacity (dense population, etc.) will be different from

optimal policy in country B with a light environmental burden, while actual policies inboth these countries, say the Netherlands and New Zealand, may be suboptimal or evencounterfinal.

The ecological content of a constitutional SC, if any, is strong or weak. Thestrong version contains a bill of amenity rights to privacy, quiet, clean air, etc., asMishan calls them (Mishan, 1967, pp. 102-105; 1981, pp. 228-229; 1982, p. 144).

Alienability of these rights will be the constitutional foundation of special markets forscarce environmental goods (marketable emission permits), which were missing in thepast. The weak version contains meta-amenity rights. The constitution asks the state totake steps such that an amenity right could become realizable for all. A meta-rightbelongs to the rhetoric of democratic partisan politics. It encourages constitutionalamendment, legal protection against government failure, but also civic revolt (Sen,1982, 1988). Meta-amenity rights will promote the polluter-pays principle and the

benefit principle.

The ecological aspect of a democratic SC is the "greening" of politics at boththe demand side and the supply side (Maclean, 1987; Paehlke, 1989; Hinich andTullock in this volume). There will emerge a majority of citizens that perceives theecological issue as the most important social problem, evaluates politicians in terms oftheir ecological competence, and displays a post-materialistic attitude, by ranking publicenvironmental well-being higher than personal consumption and wealth. Environmentalorganisations will arise, and will come to equal the lobbying power of traditionalorganizations of capital and labour. Environmental ideologies and platforms will not be

the privilege of the left but will spread over the space of political movements, partiesand candidates. The struggle against the destruction of nature (nuclear energy and allthat) will become a valence issue, both in referenda and in general elections. All thiswill attract both political entrepreneurship and bureaucratic activism, and generate newecological legislation and policy implementation. It is by no means certain that thevision of the wide political majority will correspond to the vision of mainstream economists, who prefer cost-benefit analysis to the counting of votes, Coasian quasi-marketsto Pigovian taxes/subsidies, charges to direct controls (legal standards, licenses), optimalpollution to zero pollution, marketable permits to inalienable amenity rights, voluntaryrestriction of feasible sets of producers (the bubble policy) to imposed measures, andthe pursuit of efficiency to a conflation of Paretian optimality, intrinsic valuation ofnature and ecological justice (Rhoads, 1985; Frey, 1986; Blinder, 1987, ch. 5).

Ecological corporatism implies that the main lines of environmental policy goals and means with respect to emission, waste, technology, volume and compositionof production or consumption, public expenditure, taxation and regulation - will be


based upon permanent consultation of producers' associations in the branches that are

involved; for example, agriculture, transport, electricity and the building trade.

Corporatism results in a symbiosis of environmental policy and public policy in otherareas, like fiscal policy, industrial policy, innovation policy, trade policy and welfare

policy. The ecological corporative SC will be a compromise between the political elite

and the business elite, and also a compromise within groups of corporate leaders, tradesunionists and officials at several ministries. In this setting environmental policy depends

on the relative bargaining power of the 'environmental complex', a green subset of

politicians, lobbyists, civil servants, pressmen and entrepreneurs. The ecological

administrative SC is an agreement between the Department of the Environment and

certain business sectors on the voluntary limitation of noxious production (spray cans)

or the use of noxious materials (batteries).In the next section I will discuss the performance of a hypothetical ecological

SC. I assume that the hypotheses of modem contractarians refer to the foundations of

the ecological order in late twentieth-century civil society. In Section 4 I will evaluatethe performance of the constitutional SC, the democratic SC, the corporative SC andthe administrative SC in the Netherlands. These are contractarian modes of ecological

policy. I will not examine the subtle separation and interaction between public order andpublic policy. II

11.3 MODERN CONTRACTARIANS ON THE FREEDOM TO POLLUTE

AND DELETE

Rawls, Buchanan, Kolm and Gauthier are the prominent contractarians of our time.They try to formulate rules of justice that are both determinate and morally adequatesolutions to the social distribution problem in a broad sense. I suppose that the justsocial contract will entail some fundamental regulation of the liberties of production andconsumption, in particular, the freedom to pollute the environment and delete naturalresources. But which regulation, and why?

John Rawls, the godfather of contemporary contract theory, argues that thequestion of social justice involves the appropriate rate of capital saving and the

conservation of natural resources and the environment of nature (Rawls, 1972, p. 137).

Rawlsian justice as fairness is a set of rules for just conduct as the outcome of

11 Nor will I evaluate in a very systematic way, for example, in terms of negative feedback (deviationcounteracting input), coordination, robustness or flexibility (steadfast or adapting performance acrossvarying conditions) and resilience (steering back to normal). These are Dryzek's criteria, which he appliesto markets, public administration, polyarcby, law, moral persuasion, bargaining and armed conflict(Dryzek, 1987, pp. 53, 64).

188 De Beus

impartiality, embodied by the Rawlsian procedures of an original position and a

constitutional convention. Its practical significance turns out to be rather limited (Rawls,

1972, pars. 22, 24, 33, 42, 44, 45, 58).

First, the Rawlsian just constitution does not contain detailed rules with respect

to the property rights structure. The supreme principle of liberty points at the priorityof a package of basic liberties which covers the right to property and the freedom of

movement. But the notion of equality of personal property (clothes, utensils, furniture,

books, etc.) is undefined (Munzer, 1990, p. 237). Moreover, the ecological risks of

mobility are not taken into account by the Rawlsian contractors who were, after all,invented during the 1950s and 1960s. Any just property rights structure ought to be

compatible with the principle of liberty, the principle of fair equality of opportunity, and

the principle of greatest benefit to the least advantaged, known as the difference

principle. Rawls claims that this just structure will be featured by the private ownership

of capital and natural resources. He wants the account of institutionalized property to

be as concrete as possible, and argues, among other things, that the distributive state

should constrain the private rights to inheritance and bequest. But Rawls admits that his

theory of the allocation of primary social goods - which excludes human health - cannot

provide us with a specified account of the just distribution of rights and duties with

respect to pollution and deletion. His description of the so-called property-owning dem

ocracy is not only vague but also incomplete (cf. Kymlicka, 1990, pp. 88-89; Van der

Veen, 1991, pp. 228-232). Since these issues are unsettled at the level of a hypothetical

constititional convention, they will be settled at the level of representative democracy:

Environmental legislation is an example of imperfect pure procedural justice; that is, thelegitimate use of power in day-to-day politics (cf. Pogge, 1989, pp. 91, 155).

Second, the just savings principle of Rawls is not very helpful. This principle

requires any generation to save some but not all capital (factories, machines, techniques,skills, knowledge and culture) for the sake of at least two following generations. Thisprinciple is founded upon non-eontractual arguments about the impact of the sentiment

of goodwill and the principle of fair play on rational and selfish contemporaries: heads

of families who join constitutional decision making behind a veil of ignorance, that is,

not knowing where they come in time. Moreover, the Rawlsian savings principle refersto the just rate of capital accumulation but neglects the just rate of ecological harm, for

example, degradation of the landscape, destruction of species, or creation of radiation

hazards (Barry, 1989a, pp. 189-203).12 Third, Rawls does not give a plausible sketch

of the making of a social contract at an international level. His theory of global justice

is incomplete or needs reconstruction, especially in the cases of transboundary pollution

12 Cf. Barry (1973, pp. 43, 131) and Barry (l989b, ch. 17).


(acid rain) and the global commons (polluted oceans) (Barry, 1989a, par. 23; Pogge,

1989, part three).Buchanan draws an important distinction between collective action within the

law (postconstitutional politics) and collective action taken to change the law(constitutional politics). Buchanan's justice as democratic mutual advantage relates toconstitutional judgement and decision-making, based upon the absence of duress,uncertainty with respect to future personal interests and the rule of unanimity. Accordingto Buchanan's pessimistic thesis on the rise of Leviathan, environmental policy in thepostconstitutional status quo is marked by all kinds of political failure (Buchanan, 1987,part II, 1989, chs. 26-31). The lack of information of policy makers may lead to an

excessive or redundant reduction of activities with negative externalities, for instanceto a Pigovian taxation on a monopolist. Private ordering (Coasian internalization ofexternalities) is often hampered by the vested interest of third parties, viz. politicians,lawyers and civil servants. They prefer the liability rule (compensation ex post) to the

property rule (compensation ex ante) and they overestimate the negative externalities ofentrepreneurial projects. Firms will prefer emission standards to emission taxes becausethey result in higher profits. Standards serve as a barrier to entry for new firms, thus

raising the profits of existing firms. Charges, on the other hand, do not preclude entryby new firms and also represent an additional cost to firms. In postconstitutionaldemocracy firms are better organized than consumers. Thus, they are able to form acoalition with bureaucrats, who prefer standards to moral appeals, education, globalinstruments and incentive instruments, because their application augments bureaucracy'sown role and influence (Buchanan and Tullock, 1975: Frey, 1983, p. 246; Hahn, 1990).Majority rule may induce Pigovian taxes that are either too high or too low. In the firstcase there is a coalition between sufferers (voters who do not buy the industry's productbut suffer the spillover damage generated by production) and the unaffected (voters whoneither buy nor consume any externality, but like to benefit from the distribution of taxrevenues). In the second case there is a coalition between buyers (voters who buy theproduct but do not consume any externality) and the unaffected. 13

According to Buchanan's optimistic constitutionalism, rational and selfinterested individuals will try to capture the potential efficiency gains of correctedenvironmental policy failure by introducing or improving an ecological constitution. It

is Buchanan's positive and empirical statement that a Pareto optimal environmental

)) If the group of voters who are both buyers and sufferers is bigger than the numerical differencebetween the group of pure buyers and the group of pure sufferers, then the political majority may supporta certain rate of regulation inslead of taxation. In this case, there is no financial stake of the group ofunaffected involved. The voting behaviour of this group depends on their ideology and their propensityto express ideology (Buchanan and Vanberg. 1988).

190 De Beus

policy will generally not come about through day-to-day politics, that is, pressure and

counterpressure of interest groups, competition between parties, logrolling within legislatures and bureaucratic politics. Such a policy must come about through a revolutionwith constitutional goals and means (Brennan/Buchanan, 1985, ch. 9). Constitutionaleconomy is the branch of economics that formulates and tests propositions on thepresumptive efficiency of constitutional change. Here is an example that Buchanan gavein 1959:

The economist observes what he considers to be smoke damage anddiscontent amongfamilies living adjacent to the smoke-creating plant.Using a presumptive efficiency criterion, he suggests apossible courseofaction which the group may take. This action must include, on theone hand, the payment of some tax by the preViously damagedindividuals who stand to gain by the change. On the other hand, theaction must include some subsidization of the owners of the firm tocompensate them for the capital loss which is to be imposed by therule oflaw which states that henceforward thefull "social" costs oftheoperation must be shouldered. Some such tax-compensation-smokeabatement scheme will command unanimous consent from the groupwhich includes both individuals living within the damaged area andthe owners ofthe firm. The problem for the political economist is thatof searching and locating from among the whole set of possiblecombinations one which will prove acceptable to all panies. 14

To my knowledge, Buchanan never predicted the creation of an idealized ecologicalconstitution, based upon the constitutional attitude and reasonableness of the vestedinterests in civil society. However, one can draw some elements (policy rules) of sucha constitution from his main writings:

The distribution of basic property rights and the determination of their status(correlative duties, contraints, (in-)alienability, property rules, liability rules, etc.)ought to be the task of a constitutional convention. The protective state ought toenforce these property rights, along with other constitutional rights, like politicalrights.There is no unique and detailed specification of the structure of constitutionalproperty rights. Preconstitutional equilibria, Le. power-based allocations of naturalresources in the state of anarchy ("natural equilibria"), may be unstable or multipleor even non-existent. Constitutional/legal relations and power/scarcity relations

14 Quoted from the reprint of J.M. Buchanan, Positive Economics, Welfare Economics. and PoliticalEconomy (Journal ofLaw and EcofWmics, 1959) in Buchanan (1987), pp. 9-10.


never fully match: Buchanan mentions backsliding citizens, constitutional mistakes,conservatism, demographic change and unconstitutional behaviour of governmentsand radical movements. Social contracts are periodically revised, with thin veils ofignorance and initial inequalities in various degrees. And different social and naturalcircumstances will lead the contractors to different constitutions. However, underthe present circumstances in the Western world, Buchanan predicts the emergenceand maintenance of a liberal social contract. There ought to be (i) an equaldistribution of basic liberty rights and (ii) a for the greater part private propertyrights structure as the foundation of a free, competitive market economy. IS

It is not likely that the convention will introduce amenity rights, when they willinduce an underproduction of the externality-generating good or service (Buchanan,1989, p. 375). It is also not likely that privatization and free competition, Le. thebuying and selling of the right to use, lead to an efficient solution of congestionproblems at the commons (common roads, oil pools, fishing grounds or huntingpreserves). Here government ownership and public pricing at the level of marginalsocial costs may be inevitable. It is very likely that the constitution will minimizethe number of strict property rules, in order to foster entrepreneurship, innovationand dynamic efficiency. Environmental policy ought to be the task of the productivestate in its postconstitutional setting. However, three constitutional precepts willfollow. First, the final decision with respect to the revision of controversial constitutional rights, that is, basic property rights linked with Pareto-relevant externalities,ought to be taken by the constitutional convention. Nonconstitutional property rightsgo with the scope of day-to-day politics. Second, the discretion of policy makers(members of parliament, ministers, officials, judges) ought to be limited byconstitutional law in order to prevent the ills of politicization, like corruption, rentseeking and conflation of ecological efficiency with redistribution. Third, the policymakers ought to choose instruments that are relatively immune to politicization:reduction of transaction costs of private ordering (information costs, costs of freerider behaviour, costs of strategic behaviour), introduction of marketable permits,earmarking, etc.

Kolm rejects both the idealism of Rawls and the realism of Buchanan (Kolm,1985, chs. 23, 26). Kolm's alternative is liberal social justice, which is ultimatelydetermined by two values in contemporary liberal culture. The first value is selfownership of every citizen. According to Kolm this value implies inalienability of the

15 This structure is limited by constitutionally agreed principles (e.g., equality of OPl'Ortunity) andrules of policy (antitrust policy, social policy, labour market policy, taxtation policy, etc.). I do not gointo Buchanan's treatment of these issues.

192 De Beus

self, a set of natural rights (like the rights to life, physical integrity, public expressionand free association) and a set of absolute and alienable property rights, including theright to the flow of the fruits of one's own labour. The second value is consensus as thefoundation of public cooperation between any set of affected citizens. Consensus doesnot imply that every social contract ought to be encompassing. Nor does it imply anoverall uniformity in the strict sense of identical objective circumstances (resources,power, etc.) and identical subjective circumstances, like a homogeneous willingness to

pay for public goods. The liberal value of consensus consists in the possibility that agroup of citizens can solve social problems justly, by taking self-ownership seriously,and efficiently, by minimizing all types of transaction costs. Both the scale and thecomposition of the liberal state in a market economy emanate from liberal socialcontracts with respect to issues like public goods, collective gifts, rectification of pastillegitimate acts, macroeconomic policy, public borrowing and social insurance. I pointto Kolm's treatment of externalities and natural resources. t6

An externality implies that an exchange or agreement desired by all participantsfails to take place. If this settlement would have violated no other legitimate right, thenthe liberal state implements what it would have done, choosing from a variety of policytechniques between information at one extreme and prohibition at the other. Kolmclaims that a tax-subsidy-eompensation treatment of externalities is generally preferredto legal standards. t7 The liberal social contract on the correct assignment of naturalresources is an agreement on the relevance of the following criteria:

first occupancy;unanimity between the persons involved;equal partition;need (for a special resource);collective welfare or collective pay offs;desert;selling to the highest bidder plus equal partition of the final product, or partitionaccording to need or desert (if the resource is unique and indivisible);public enterprise, public auction, full nationalization, or taxation of rents.

16 Cf. Kolm (1985, ch. 10) and Kolm (1987), an English summary of Kolm (1985). Van Parijs (1991,par. 7.8) discusses and rejects Kolm's solution to the problem of poverty.

17 Environmental policy ought to be based on a distinction between what happens by intervention (Efor exists or effective), what would happen without intervention (5 for spontaneous), and the rightssituation (R, either a creator's right to create the effect, or a receiver's right to require that it has thislevel). Since E :s 5 for a negative externality, there are three types of situations. If R < E < 5, thecreator pays on the basis (E - R); if E < R < 5, the receiver pays on (R • E); and if E < 5 < R, thereceiver pays on at least (5 • E) and up to (R - E), depending upon bargaining. In each case the tax isa benefit tax.


Kolm fails to derive a dominant criterion. He suggests that the liberal social

contract implies unanimity with respect to (i) a mixture of criteria, (ii) the norm of

practical justice, that is, maximization of the minimal level of fundamental-preference

satisfaction of the worse off and (iii) the inevitability of compensations and taxes. Kolm

concludes that these restrictive rules concerning the ownership of the earth and

environmental policy are compatible with the libertarian notion of negative liberty.

Gauthier rejects Rawlsian impartiality behind a veil of ignorance, Buchanan's

truce between persons and groups with unequal natural advantages and Kolm's appeal

to radical liberal morality in the real world (Gauthier, 1986, 1990). His conception of

justice as rational and bargaining-based morality refers to a hypothetical initial situation

in which individuals are mutually unconcerned utility maximizers with unequal natural

advantages, both means and capacities. Rationality implies that every individual aims

at a satisfying part of the cooperative surplus, that is, the increase of the social product

brought about by cooperation within a social order. Gauthier introduces two basic

assumptions with respect to the behaviour of rational participants to contractualbargaining. First, each wants her or his concession from the maximum claim to be no

greater than the maximum concession that anybody else has to make (hence, minimax

relative concession). This is equivalent to the assumption that each wants her or his net

benefit to be no less than the minimum benefit that anybody else has to accept under any

arrangement (hence, maximin relative benefit). This criterion of 'splitting the difference'

makes no sense at all to animals, the congenitally handicapped and defective, and the

unborn, who are, therefore, excluded from contraetarianjustice. Second, anyone accepts

that initial inequalities are constrained by a Lockean proviso: no one may better himself

through any interaction that worsens the position of another. This proviso is very weak.H rules out cost displacement, that is, making someone worse off when worsening thesituation of others is the means of bettering one's own situation. But it does not rule outsubstantial negative externalities, e.g. in the case of a fisherman living upstream who

disposes of waste and, unintentionally, kills many of the fish of the fishermen living

downstream. Moreover, the proviso: (i) permits the fisherman to worsen the situation

of others very significantly, when doing so is necessary to prevent his own situation

from being worsened only slightly; (ii) permits the fisherman to kill, beat or rob others

when someone else would do so if one did not; and (iii) permits the fisherman to use

people in all sorts of horrible ways as long as he also helps them in various ways so thatthe net welfare effect on them is positive. IS

18 My interpretation of Gauthier's second assumption is based upon the comments of Hubin andLambeth, and Vallentyne himself in Vallentyne's collection of papers on Gauthier (1990). Gauthier'sother assumptions concern the considered preference of individuals and constrained maximization of longterm utility in a Prisoners' Dilemma context.

194 De Bew

Gauthier's social contract entails: (i) a legal structure of private property rights

as a prerequisite to a perfect free market economy; (ii) a personal right to anything one

can get in this economy, with the exception of rents from scarce talents, which oughtto be taxed by the state; and (iii) a share of the total social surplus from public goods,all determined by the principle of maximin relative benefit. Any private appropriationof natural resources that is compatible with the Lockean proviso is legitimate (Gauthier,1986, pp. 208-217). Gauthier admits that this may generate both Pareto-efficientcapitalist development and irresponsible behaviour with respect to the natural environment. However, any least cost pollution or deletion by profit maximizing actors violatesthe requirement of mutual benefit proportional to contribution (Gauthier, 1986, pp. 223225). And any governmental action against the decline of natural resources (e.g. thesupply of air free from pollution) that is based upon proportional taxation is legitimate.Gauthier contends that both the rational rich and the rational poor will want to live witheach other on the basis of compliance with this social contract. In the final analysis the

unborn can be included. Gauthier argues that each generation ought to attain an intermediate rate of savings and investments: members of each generation receive the sameproportion of their claim as did their predecessors and as will their successors, but theproductivity of investment guarantees continuing enrichment (Gauthier, 1986, p. 304;cf. Barry, 1989b, ch. 19). The argument is not very helpful, since Gauthier assumes therate of depletion to be negative. This very assumption is undermined by the ecologicalcrisis.

The central contractarian claim implies that any instrument of environmentalpolicy of any authority will be effective if, and only if, it is based upon certain generally

agreed-upon moral rules, that is, goals, principles, means and strategies with respect topolicy. My survey shows that this claim is weakened by the generality of contractarianthinking and the dissension among contractarians about two issues, namely the substanceof a determinate contractual solution to environmental problems, and the moraladequacy of this solution. All four thinkers contend that contractarianism can onlyendorse general policy rules. The opinion of Rawls is rather extreme, since he admitsthat the ecological social contract is virtually empty. Rawls invents the just savingsprinciple, but this principle is weaker than his other principles: it does not exclude the

awkward mixture of distributive justice and ecological catastrophe. Buchanan, Kolm,and Gauthier do fill the constitutional space with specific policy rules, but they cannotexclude the possibility that these rules will not solve specific problems and conflicts inthe real world.

The dissension about substance is evident. Buchanan focuses on efficiency. He

fears that any entry of ecological equity will open the floodgates to politicization.Rawls, Kolm and Gauthier are willing to discuss ecological equity. Rawls suggests that


environmental policy ought to be constrained by his principles, particularly the just

savings principle and the difference principle. Kolm and Gauthier suggest that theindividual or collective right to pollute and delete ought to be constrained by justice,that is, the principle of practical justice (Kolm), and the Lockean proviso and themaximin relative benefit principle (Gauthier). Kolm adds a tax-subsidy-compensationscheme. It is clear that these solutions are heterogeneous. Furthermore, Buchanan pointsout that the constitutional status of these three solutions are thoroughly path-dependent.Powerful and unreasonable groups of producers and consumers may simply block them.

Finally, the contractarians disagree with each other about the kind of contractthat corresponds to our moral common sense. Rawls starts from impartiality. Kolmstarts from Western liberalism. Buchanan and Gauthier start from mutual advantage, butthe former accepts any social equilibrium in the state of nature, while the latterintroduces a Lockean proviso (Gauthier, 1986, pp. 193-199; Buchanan, 1988; Gauthier,1988, pp. 197-207).

11.4 CONTRACTARIAN METHODS IN DUTCH ENVIRONMENTAL

POLICY

It is well known that consensual legitimacy is a vital norm in the history of the Dutchpolitico-economic system. Dutch environmental policy dates back to the nuisance act of1810, but it really took off during the 1970s, after the acceptance of a system of effluentcharges in the Pollution of Surface Water Act of 1969. One expects Dutch policymakers to draw heavily on contractarian methods. In this section, I will assess verybriefly the impact of four current methods, to wit constitutional law, (party-)politicalconsensus, corporatism, and bureaucratic agreement. All these methods are connectedwith the policy makers' belief that the only effective environmental policy is a legitimateone.

The Dutch Constitution of 1983 includes the following article: "The governmentlooks after the habitability of the country and the protection and improvement of theenvironment". This is a meta-right which clearly affects Dutch public policy. In 1989the Lubbers II cabinet designed a National Environmental Policy Plan (N£PP), whichappeals both to this article and to the fundamental right of all human beings to anenvironment adequate for their health and well being. 19 However, the meaning of thisspecific meta-right appears to be very limited. The political debate on environmentalpolicy usually relates to the need for new legislation by parliament (the Dutch Second

19 The lalter right is proposed by the World Commission on Environment and Development in itsreport Our Common Future (Brundtland Report 1987).

196 De Beus

Chamber), the need for urgent policy measures by governmental agencies (administrative law) or the need for judicial arbitration in the event of conflicts between privateparties or between private parties and the state. There is no collective action in favourof a constitutional bill of amenity rights. Constitutional rule making is widely seen asroundabout production of ecological security and well being. The call for amenity(meta-)rights, if any, is a symbolic one. The irrelevance of constitutional law is nicelyillustrated by the problem of soil pollution in residential areas. During the 1980s theresidents in several Dutch cities and neighbourhoods discovered that their houses werebuilt upon polluted soil, which threatened their interests (physical health risks, financialproblems, emotional stress). Some groups of residents managed to solve the OlsonMargolis organization problem.2o These new organizations did not demand any changeof the Dutch constitution. The pressure on local and national authorities was orientedtowards cleaning and financial compensation in the short run and revision of the SoilSanitation Act in the long run (Aarts, 1990).

The political consensus on environmental policy has two aspects. First, theelections of the Second Chamber in 1989 compelled all political parties to leap on to theecological bandwagon and offer extensive commitments to clean up the environment.The Green Left is a merger of former communists, pacifists and radical christians whohope that a radical ecological platform will induce the electoral revival of the left. Butall the big and well-established parties, like the social democrats, the liberals, thechristian democrats and the conservatives have promised, in a ranking of decreasinggreen radicalism, to take the idea of a sustainable economy seriously. This is notsurprising since 34 percent of the Dutch population points to environmental protectionas the biggest social issue, and this surpasses all other issue blocs (unemployment: 19percent; crime: 13; sexual equality: 9, and European integration: 9). Second, allpolitical parties accepted the alarming results of Concern/or TOTTlO"OW, the national environmental survey 1985-2010 of the National Institute of Public Health andEnvironmental Protection, which was published in 1989. This survey distinguished fivelevels within which material and energy flows occur (local, regional, fluvial,continental, and global). Both the present and future magnitude of environmentalproblems at these levels were estimated. Substantial reductions of emissions wereproposed, entailing social costs at 2 to 3.5 percent of the Dutch GNP up to 2010. Both

:Ill Olson says that large groups will not be organized on a rational and voluntary basis (compared withsmall groups individual net benefits are smaller, subgroups with a large willingness-lo-pay are lessfrequent, and coordination costs are higher). Margolis says that the voluntary individual contribution to

collective action depends on both the social valuation-private valuation ratio and the social spendingprivate spending ratio of the individual. It is nol group size but Darwinian pressure that determineswhether each group member will attain her or his fair share balance by participation.


the centre-right Lubbers II cabinet (a coalition of christian democrats and conservatives)

and the presently incumbent centre-left Lubbers III cabinet (a coalition of christian

democrats and social democrats) used the same survey to formulate a NEPP-strategy.

A comparison of these strategies shows that they differ in terms of detailed formulation

of aspirations, planning horizon and public outlay. But they cover an identical basicapproach, which can be summarized in terms of five points.21

In the first place, ecological planning ought to eliminate causes (the breaking

open of cycles, the more intensive use of energy, the neglect of quality in production

processes and products) and to stop the shifting off mechanism (on other citizens, other

places, and the future generations). This goal is called "diverting the trend by the

present generation (in 20 to 25 years)". In the second place, ecological planing is based

on six normative presuppositions: the stand still principle (no further deterioration); the

need for abatement at the source; the polluter-pays principle; the need for prevention

of unnecessary pollution; the careful control of waste disposal; and the desirability of

internalization, that is, acceptance of appropriate environmental responsibility by every

citizen or civil organization. In the third place, ecological planning aims at sharp

reductions of emissions in the 1990s, i.e., reductions of 70 to 90 percent in emissions

of acidifying substances, certain hydrocarbons and poorly degradable substances. In the

fourth place, ecological planning is comprehensive, that is, its measures ought to solve

eight problems, namely climate change; acidification; eutrophication; diffusion of

substances; disposal; disturbance; dehydration; and squandering. And these measures

ought to be supported by specific target groups, like the farmers and the motorists.

Finally, any implementation ought to be compatible with the principles of legality,

democratic accountability and effiency-cum-effectiveness.In the policy makers' view, this type of planning falls within the limits of the

constitution; it is supported by public opinion, the median voter, and a wide majorityin parliament; and it will be elaborated in a contractarian spirit, that is, by corporatist

bargains and bureaucratic deals, the so-called covenants. If this view is correct, the

Dutch have given an arresting example of an ecological SC within the Althusian

tradition of consociationalism (Kossmann, 1987, pp. 61-64, 73-77, 84-86, 103-110;

Daalder, 1991, pp. 362-377; Hemerijck, 1991). However, one has to take several

qualifications into account. First, the NEPP of the second Lubbers cabinet never

materialized, since the conservatives did not want a full elimination of travel subsidy,

a tax expenditure that benefits motorists. A conflict between christian democrats andconservatives on this first, but rather insignificant implementation of the new environ-

21 See Nationaal Milieubeleidsplan, Tweede Kamer, 1988-1989, 21137, nrs.I-2 and NatiooaalMilieubeleidsplan Plus, Tweede Kamer, 1989-1990,21137, nrs. 20-21.

198 De Beus

mental policy induced the collapse of the coalition. If the conservative opposition party

rejects the major environmental acts that will be proposed by the Lubbers III cabinet,this would imply that political consensus is a pseudo-social contract, since one politicalminority is excluded. I might add that most of the Environmentalist organizations arediscontented. They demand more ambitious policy goals and prohibitions. Second, theNEPP is sometimes inconsistent. For instance, in 1988 40 percent of environmentalpublic expenditures was financed by means of general taxation and earmarked taxation.This figure will be reduced to 34 percent in 1994, which still implies non-applicationor watered-down application of the polluter-pays principle (Nentjes, 1990, pp. 146-149).Third, the authority of the environmental policy makers is both strong and weak. It isstrong when, and because, the mixture of general electoral support and specificconsensus between political parties is much more instrumental in introducing efficient

measures (charges, permits) than the mixture of the Green Left and occasional protestsof citizens's movements. The first mixture can break the veto power of vested interests,that is, firms, producers' lobbies and public bureaucracies that prefer non-intervention

or soft regulation (cf. Nentjes, 1990, p. 153). It is also strong when, and because, it islinked with the succesful practice of effluent charges and licences (Hahn, 1989, pp. 105106). It is weak since the policy makers have good reasons to fear that the strict NEPPwill generate major non-compliance and principle-agent problems, which are alreadyendemic in other state control areas like taxation policy. The focus on internalization,the tedious and indeterminate assessment of the issues of instrument choice and lawenforcement, and the political impossibility of traffic and airport containment all reflectthe fear of incredibility and great planning disaster.22 The NEPP may tum out to be

a Hobbesian Covenant without the Sword.The corporative settlement of ecological conflicts is virtually absent. The

present government talks about "goal-group management". This means that ministrieswill cooperate with organizations that represent agriculture, traffic and transport, industry, energy, oil, the building trade, waste processing, consumers and retail trade.The cooperation procedure boils down to good intentions, publicity campaigning andsolemn documents. The Social Economic Council, a national assembly in whichrepresentatives of trades unions, employers' associations and the government meet, hasresponded favorably to both the Brundtland report and the NEPP. But is not likely that

the Social Economic Council will provide any operational compromise with respect to

the distribution of environmental policy costs (standards, licenses, charges, taxes, andso forth) and the impact of environmental policy on profits and wages, for instance,guidelines that do not permit policy-based price increases to be compensated by nominal

22 Cf. Instrumentarium. handhaving and de WABM. Tweede Kamer. 1989-1990.21137. or. 22.


wage increases. This assembly has gradually lost its capacity to arrange social contractsand legitimize economic policy (Klamer, 1990). Moreover, its traditional concerns arethe labour market, social security, and economic growth in a small, open economy. Asfor environmental policy, it adopts an attitude of wait and see. Ecological corporatismis not impossible. In 1989 the summit associations of employers and employees decidedto start a common environmental campaign. And the so-called Air Forum - a seminarof trade and industry, government, and environmentalist groups - designed an importantplan to halve acid rain within ten years.23 However, the general impact of corporativecapital-labour bargaining is policy retardation. This confirms Johansen's Law:"Bargaining has an inherent tendency to eliminate the potential gain which is the objectof the bargaining" .24

The bureaucratic agreement (covenant) is a fashionable policy instrument in theNetherlands, as well as in Germany. Small groups of officials and representatives offirms or branch organizations bargain about the best way to realize given environmentalpolicy goals and ratify a written agreement. It is in the interest of bureaucracy to speedup policy implementation and to promote compliance. It is in the interest of the businesscommunity to preempt hard legislation or administrative law and to protect the exitoption. Many covenants have been ratified. The strong Prisoners' Dilemma argumentsuggests that all industries will backslide. This argument is corroborated with respectto the production or productive use of oxyde or mercury batteries, PET bottles, anddrinks packaging, and, to some degree, plastic crates and phosphate detergents. Butthere is a satisfying degree of cooperation in the business of spray cans, alkalinebatteries and heavy traffic (Gilhuis, 1989; Klok, 1989; Van AchtlDamen, 1990). Fromthe viewpoint of the rule of law, problems arise with respect to its voluntariness,binding force, validity, legal impact on third parties and legal security. From theviewpoint of liberal democracy, problems arise with respect to parliament's delegationof power and the probability of free-rider behaviour, blocking behaviour and rentseeking. The covenant-based environmental self-regulation boils down to illegitimacy(agreements under bureaucratic duress) or non-regulation (genteman's agreements)(Goodin, 1989, pp. 42-44).

I conclude that contractarian methods in environmental policy have flaws.Constitutional law is symbolic, consensus in partisan politics runs up against the

23 Cf. Beek. W.J.IPJ.M. Stallen, 1989 (Naar een nationaal beleid regen de venuring, SMO, TheHague), Schouten, C.W., 1989 (Een nationale aanpak van de verzuring, SMO, The Hague), andSchouten's essay, 1989 (Osmose, 15, 3-9).

2A Johansen (1979, p. 520), without italics. Cf. De BeuslVan den Doel (1980) on retardation ofincomes policy.

200 De Beus

difficulty of law enforcement, corporatism is absent, and bureaucratic agreements are

controversial.

11.5 CONCLUSION

Hardin has recently raised four objections to contractarianism. First, the formal socialcontract is a solution to a Prisoners' Dilemma Game, but does not provide the best

answer to an Assurance Game (reciprocity problems) and pure distribution problems.

Second, the social contract has both the function of information retrieval (evidence about

the subjective perception of interests) and the function of collective strategy formulation(formation of correct expectations), but it does not have a separate moral function (cf.Luban, 1985; Benjamin, 1990). Third, the social contract's scope includes rules of

conduct, but excludes dispositions. Therefore, it does not solve the compliance problem.

And fourth, there is a gap between rational contracts and actual social contracts, as faras demand-revealing is concerned. A social contract in the real world generatesinformation about what arrangements benefit relevant people, but a hypothetical socialcontract requires the assumption of the relevant kind of information in order to justifyit (Hardin, 1990).

My argument on the ecological social contract affirms Hardin's characterizationofcontractarianism as wishful thinking. It also confirms Dryzek's analysis of the failings

of ecological polyarchy and bargaining, like exclusion of powerless groups, slow

feedback and rigidity (Dryzek, 1987, pp. 120-131, 172-177). The generality of the con

tractarian limit to the freedom to pollute and delete shows that the hypothetical social

contract does not solve the pure ecological conflict and does not function publicly as itshould do, in terms of information retrieval, strategy formulation and moral imperative.The dissension between contractarians shows that they wrestle with the complianceproblem and the gap between idealized consensus and real-world consensus. Nevertheless, it is generally agreed in Dutch politics and policy making that consensuallegitimacy may solve all strategic interdependency problems (Coordination Game,Assurance Game, Prisoners' Dilemma Game, Chicken Game, Inequality PreservationGame); may be functional in developing social order, that is, predictability, cooperationand public morality; may result in rule-guided behaviour of citizens, and may result inrationalization of society. But at this moment contractarian methods in Dutch

environmental policy (constitutional law, political consensus, corporatism, bureaucratic

agreement) are symbolic, ineffective, controversial or simply absent, in spite of their

presumptive efficiency. The time required for emergence ofan ecological social contract

may exceed the length of time beyond which the deterioration of the Dutch natural

The ecological social contraet 201'

environment is irreversible. This is the gloomy prospect of all democrats and welfarists

alike.

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MIRROR, MIRROR ON THE WALLWHO IS THE FAIREST OF THEM ALL

or

why so many public policies designed to tackle environmental problems have railedso rar

Hans J.G.A. VAN MIERLOLimburg University

Frans K.M. VAN NISPENErasmus University Rotterdam

12.1 INTRODUCTION

A decade ago Charles Wolf Jr. published his well known article on non-market failuresin which he presented a mirror to the government (Wolf, 1979). The article evoked anumber of reactions (Peacock, 1980; Musgrave, 1981; Recktenwald, 1984), but thesecan be qualified as fine tuning rather than as a totally different opinion. In this chapterwe will concentrate on one side of the coin, the non-market failures, which offer apossible answer to the question of why the efforts of the government to solve environmental problems, which - at least until recently - were dominated by regulations, havenot so far met the high (maybe too high) pitehed expectations. We shall argue that theineffectiveness is due to the distributional inequity of present policies.

The structure of this chapter is as follows. A framework for the analysis of theconsequences of government intervention is presented in Section 2. Following Wolf, wewill distinguish four non-market failures of which distributial inequity seems to be especially important in the sphere of environmental policies. In Section 3 we will argue thatthe acceptance of Pareto-superior adjustments of environmental policies is not only amatter of design, but also of implementation and, more specifically, organization. In ourview, a political entrepreneur is needed to counterbalance the very well organized opponents of adjustments to present environmental policies. The introduction of a politicalenterpreneur is the subject of Section 4. We conclude with a plea against ecototalitarianism. Indeed, we shall provide reasons to believe that only eco-democracy canoffer effective remedies for market and non-market failures in environmental affairs.

Environme...1 Procection: Public or Privalc Choice, pp. 207-219

208 Van Mierlo, Van Nispen

12.2 A FRAMEWORK FOR mE ANALYSIS OF GOVERNMENT

INTERVENTION

In analogy to the economic theory of market failure, Wolf draws a distinction betweenfour categories of non-market or government failure, providing as many hypotheses forthe analysis of environmental policy. The hard core of his argument is that the implications of non-market failure might be worse than those of market failure. 1 As a result,counter measures are needed against the counter measures against market failures; i.e.counter-eounter measures (Wolf, 1979, p. 136). In other words, the question is notwhether the budget mechanism is associated with exceptional costs, but whether thesecosts exceed the costs linked to the market mechanism. A thorough comparison of thecosts and benefits of both mechanisms is needed in order to decide whether theprovision of specific goods or services has to take place in the public or the privatesector.2 After all, it is a choice between imperfect alternatives.

The government failures, which result from the specific characteristics of nonmarket demand and supply, regardless of the equilibrium point of public demand andsupply (Wolf, 1988, p. 62), can be summarized as follows:1. The disjunction between revenues and costs of non-market production resulting in

redundant costs. The possible gains from change are uncertain, while the costs ofthe maintenance of the status quo are low. For that reason, opportunities for theminimization of the costs or maximization of the productivity, as well as foreconomies of scale, are ignored with redundant costs - X-inefficiency (Leibenstein,1966) - as a result. Moreover, these redundant costs increase over time.

2. The development of internal standards (internalities) and organizational goals. Thenon-market agencies, lacking the direct performance indicators of the market consumer behavior, market shares and the profit-and-Ioss bottom line - have to settheir own standards. These standards - or internalities - are the goals that applywithin non-market organizations to guide, regulate, and evaluate agency performance and the performance of agency personnel. They boost agency supply curves

I Note that the term 'failure' is not used in the traditional restricted sense of the word and that'market failure' is not the same as 'market imperfection'.

2 See Hans van den Doel who argues that comparison of the reality (and not of the ideals) of thepublic and the private sectors of industry inevitably leads to the conclusion that the two sectors produceunder circumstances of unequal power and imperfect competition, so that neither fully makes use of thepossibility of meeting the consumers' preferences. In other words: the reality of both market and nonmarket mechanisms produces benefits as well as costs. The choice between these mechanisms can onlybe made on the basis of a full comparison of the marginal costs and benefits of both (Van den Doel,1979. p. 153).

Mirror, mirror on the wall 209

above technically feasible ones, resulting in a higher input and/or lower output than

the socially desirable (Niskanen, 1971; Breton/Wintrobe, 1982). In that respect,internalities are the inverse of the externalities associated with the market. Theexistence of externalities means that some social costs and benefits are not included,while the existence of internalities means that some organizational costs and benefitsare not excluded.3

3. The existence of derived externalities is one of the reasons for the intervention ofnon-market organizations in the market. However, the intervention of these agencieswill also generate unanticipated side effects.4 These side effects of the non-marketare often overlooked because of the short time horizon and high time discounts ofpolitical actors. Derived externalities in the non-market domain are side effects ofwhich the agency creating them is not aware and hence do not affect the agency'scalculations or behaviour. The likelihood of derived externalities is further enhancedby both demand and supply characteristics associated with non-market output (seecategory 1).

4. The efforts of the government to compensate for distributional inequities as a resultof the market may result in other distributional inequities in income and wealth, aswell as in influence and power. It places discretional authority in the hands groupsof individuals and, therefore, provides opportunities for abuse, with distributionalinequity as a result.

A comparison of the four categories of non-market failure with the well-known marketfailures is made in figure 1.

3 Wolf distinguishes three types of such internalities. First, the organizational goal of budget growth(more is better). Second, the desire for technological advance (new and complex is better). Third,information acquisition and control (knowing what others don't know is better).

• Liberals are likely to see a greater externality in the regulation to prevent an externality than in theprevented externality itself (Riker/Ordeshook, 1973. p. 293).

210

Figure 1 Categories of market failure and non-market failure

Van Mierlo, Van Nispen

market failure non-market failure

increasing returns redundant and rising costs

externalities and public goods internalities and organizational goals

market imperfections derived externalities

distributional inequity in income and distributional inequity in power andwealth privilege

According to Wolf, the internalities are as important for the theory of non-marketfailure as the externalities are for the theory of market failure (Wolf, 1979, p. 117). Wedo not challenge the importance of the internal standards and organizational goals, butin our view inequity is more relevant for the explanation of the lack of success ofenvironmental policies or, to say it differently, the failure of the government to copewith environmental problems is not so much a matter of allocation as a matter of

distribution. It seems to us that this lack of success is particularly due to the fact thatthe benefits of environmental protection to relatively large groups of the population arenot adequately accounted for in the policy making process.

12.3 ENTREPRENEURIAL POLICIFS

A question of distribution?

The theory of non-market failure is elaborated by James Q. Wilson, who has claimedthat a policy, especially one involving economic stakes, can be classified in terms ofcosts and benefits. The consequences, Le. the costs and benefits of a policy, may bemonetary or non-monetary and the value assigned to it as well as the beliefs about thelikelihood of its materializing can change. He has argued that not only the magnitude

- politics is replete with discussions of 'windfall profits', 'tax burdens' and 'unmetneeds' - but also the distribution of the costs and benefits matter. The costs and benefits


may be widely dispersed or narrowly concentrated (Wilson, 1973, 1980). The subsidies

to a particular industry or the regulations imposing the costs on an industry that cannotbe fully passed on to the consumers are, for instance, narrowly concentrated, whereasincome and social security taxes are widely dispersed. Moreover, perceptions of thefairness and unfairness of a policy profoundly affect the extent to which it is regardedas legitimate and, therefore, justified.

The different implications of government intervention can be combined into amatrix as presented in Figure 2. It should be emphasized, though, that this is a stylizedscheme and that there are many intermediate cases:

Figure 2 Four types of public policies

~concentrated distributed

costs

concentrated interest policies entrepreneurialpolicies

distributed client policies majoritan policies

In the case of environmental policies we have to do with widely dispersed benefits andnarrowly concentrated costs. In that situation a political entrepreneur is needed toorganize the beneficiaries. Apolicy characterized by a narrow concentration ofcosts andan even distribution of benefits - such as taxes and regulations that make the polluterpar - will not be accepted unless those who benefit are organized in a comparable wayto those who pay the price. However, the incentive for the beneficiaries to organize isweak, as is shown by Mancur Olson Jr., who has puzzled over the paradox thatindividually rational behavior may lead to collectively irrational results (Barry/Hardin,1982).

, The theory of interest groups can be applied to the policy already implemented. as well as to thepolicy planned for the nearby future. The philosophy behind both is the same: the polluter bas to pay.but the costs may be distributed differently.


A question of organization?The interest of the theory of collective action, which has been developed by Mancur

Olson Jr. (Olson, 1965), consists in the conditions under which a group, being a number

of individuals with a common interest, will succeed in providing a collective good6 to

its members. He concludes that a rational, self-interested individual will not act to

achieve a common interest, unless membership is quite small or an incentive is offered

to make individuals act in their common interest. The individual optimum may conflictwith the collective optimum of the group, because there is no 'invisible hand' to match

between both optima in a large group. On the contrary, in a large group the problem

of the 'malevolent back of the invisible hand' comes up (Hardin, 1982, p. 7).

A rational individual in a large group can make two assumptions, both leading

to apathy. The first is called positive apathy, i.e. the belief that it does not matter

whether he will participate or not, because the collective good will be provided anyway

and he cannot be excluded. In this case an individual has no incentive to participate. In

fact, it is to his advantage to remain aloof. The second is called negative apathy, i.e.

the belief that it is not worthwhile participating because the collective good will not be

provided anyway. As a result, he will bear only the costs and receive no benefits from

his participation.7

The problem is that participation in a large group will have only a small

impact, if any, upon the production of the collective good, whereas participation in a

small group will be decisive. In a large group participation or non-participation will

make no difference: either the collective good will be provided, and then a member

benefits even without paying his share of the costs, or the collective good will not be

provided, and then he does not benefit even when he is willing to pay his share. Inother words, in a large group there is little or no incentive for a rational individual toparticipate in the collective action of the group and to pay his contribution. The rationalindividual is tempted to display parasitic behaviour or free ridership. As a result, arational individual in a large group - whatever assumption he makes - will not participate unless an incentive is offered.

6 Note that a common interest is translated into a collective good. A pure collective good bas twocharacteristics: once it is provided nobody can be excluded from the consumption of the good (non-excludability) and consumption by one individual does nol rival with consumption by another individual(non-rivalness). Together, these two technical characteristics of pure collective goods cause the SlXlIlled'participation problem' in the collective action of a group.

7 The interest group theory can be considered as a special case of the well-known prisoner's dilemma.At the heart of the prisoner's dilemma, as Elinor Ostrom bas slated quite correctly, is the free riderproblem (Ostrom, 1990, pp. 5-7).

Mi"or, mi"or on the wall 213

The incentive might be twofold. On the one hand, the rest of the group might

decide to employ a positive or selective incentive to stimulate an individual to join the

group by offering him a private good or service which he only receives when he does

and from which he will be excluded if he does not. The provision of such a private

good or service can be considered as a necessary, but not a sufficient condition for the

production of the collective good. On the other hand, the group might tum to a negativeincentive, for example coercion. In that case, a member of the group will be punished

if he refrains from cooperation in the production of the collective good. The supply ofincentives changes the pay-off matrix of the group members or, to state it differently,the decision of a rational individual to join (or to stay in) a group is not only guided by

the costs and benefits of the collective good, but by the costs and benefits the incentives,

too. Of course, the supply of an incentive is itself costly and these costs have to betaken into account by the group. This is true for a positive incentive as well as for a

negative one.In response to Mancur Olson, Richard Wagner has suggested that a political

entrepreneur is of crucial importance for the organization of large groups. For this

purpose, the political entrepreneur mobilizes latent public sentiment (by revealing a

scandal or capitalizing on a crisis), puts the opponents of a plan publicly on thedefensive (by accusing them of deforming babies or killing motorists), and appeals to

widely shared values (clean air, pure water, health, and safety) (Wagner, 1966).8 A

political entrepreneur will be particularly effective when the benefits are widely

dispersed and the costs narrowly concentrated, as is the case with the governmentintervention to solve environmental problems.

12.4 A TRAGEDY OF THE COMMONS?

The analysis of Mancur Olson is echoed by Garrett Hardin who has labeled the dilemma'the tragedy of the commons', which he has illustrated as follows:

'Picture a pasture open to all ... As a rational being, each herdsman... concludes that the only sensible course for him to pursue is to addanother animal to his herd ... Therein is the tragedy. Each man islocked into a system that compels him to increase his herd withoutlimit - in a world that is limited' (Hardin, 1978, p. 1244).

8 Mancur Olson claims that the incorporation of the concept of an entrepreneur does not contradictor invalidate his conclusions, but rather enriches the argument and makes it a better tool for the studyof organization leadership and change. The contributions of the different authors, as is usually the casein science. are cumulative.


The tragedy of the commons reappears in the problem of pollution. Here it is not a

question of taking something good OUi of, but of putting something bad into thecommons (Hardin, 1968). The question, to state it differently, is not how to provide apublic good, but how to prevent a public bad.

The analyses of Mancur Olson and Garrett Hardin easily gives rise to seriouspessimism about the possibility for solving the environmental problems we face at thismoment. It is clear that the market will not solve these problems, but causes them inmany cases, and that non-market agencies lack the right incentive to address the

problems. Fortunately there are some ways out, as has been shown by Elinor Ostrom,who holds a less pessimistic view of the solution of environmental problems. She has

proposed a variety of institutional arrangements - among which are rules to restrict the

number of people who can use the common and rules to allocate the cost and benefitsof the provision of the collective good among its users - to escape the underlying determinism of the 'tragedy of the commons' (Ostrom, 1986, 1988, 1990). In her viewneither the market nor government can show us the way out, but some kind of publicprivate partnership is needed. Such a joint venture can lead us beyond the marketlnonmarket dichotomy and hence offer us a way out of the various failures, either marketor non-market. The economic market with his inherent failures is substituted by apolitical market, on which compromises are sought by means of exchange and negotiations.

In these negotiations a skilled political entrepreneur plays a pivotal role that according to Terry M. Moe - might be twofold. A political entrepreneur is responsiblefor:1. the internal organization, i.e. the administration and management of the group

providing individual services to the members of the group in order to attract moreindividuals (Olson's selective incentives!);

2. the common interest of the group, i.e. making use of the size and the politicaleconomic weight of the group for the provision of a collective good to the membersof the group (Moe, 1980, pp. 36-72).

At least three conditions have to succeed:1. a sufficient number of potentially interested individuals must be willing to buy the

services provided by the group and hence to join the group;

2. the political entrepreneur must have selective incentives to his disposal in order tolure new members into joining the group;

3. the net benefit must be positive for both, i.e. for the political entrepreneur providingthe individual services to group members and for the group members as consumersof these individual services.


The outcome of entrepreneurial politics depends mainly on the quality of the political

entrepreneur.9 It is important that the political entrepreneur serves as the vicariousrepresentative of the group, but does not directly participate in the legislative process.In that situation, an authoritative, fonner entrepreneur like Dekker (Philips) or Wagner

(Shell) may be recommended.According to Wim Hafkamp, the ftrst signs of such a political market are

already visible. First, a policy network in which the public sector and the private sectorcooperate is growing, replacing the traditional situation in which they stand opposed toeach other. A number of new actors have gained access to this policy network - e.g.individual ftnns, labour unions, consumer organizations, investment bankers and environmental organizations - shifting the power balance and changing the structure of thepower game from a zero-sum game to a positive-sum game in which Pareto-optimal

gains and win-win solutions can be found.Second, the genesis of a policy network has enforced a reconsideration by all

participants of their role, the goals to be attained, the means to meet these goals etc.The generation of new tools to cope with environmental problems enables agreement on(partial) solutions for environmental problems with hardly any government interventionas is the case with the so-called 'bubble concept'. 10

Third, the government has started a reconsideration of the use of regulations,

the enforcement of these regulations and the generation of alternative instruments liketaxation - ftnancial incentives instead of physical regulations - has started. The controlofenviromental policies will be more adequate and more intensive. In particular the wayin which government has employed the argument of 'legal lability' of individual ftnns

recently has been very effective. Moreover, it turned out to have a strong preventiveeffect on the way business behave in respect to environmental problems.

Fourth, the failing enforcement and control of environmental policies towardsbusiness has caused finns to take their own responsibility. A number of individualcompanies have established an internal unit for the scanning of the environmental problems caused by the production process.

9 A political entrepreneur is motivated by his own individual interest and nol by the collective interestof the group or, to say it differently, he will organize a large group in order to provide a collective goodwhen he CAI1 make an individual profit out of it (Hardin, 1982, p. 35).

10 The philosophy behind the 'bubble-eoncept' is quite simple: the government sets a nonn and leavesthe enforcement of that nonn to the industry. The industry is free to produce and to distribute pollutionas long as this nonn is not violated. The allocation of the pollution among the firms CAI1 be done throughthe introduction of tradeable property rights. The management of these property rights could be left tothe private sector. It leaves the monitoring of the nonn for public sector. Of course, monitoring is notpriceless, but cheaper than allocation by government itself.


Finally, all kinds of cooperation between the public and private sector have

been established such as the collection, transportation and recycling of waste products,the support of firm-internal environmental activities, the development of generalstandards for environmental pollution and environmental protection by productonactivities (Hafkamp, 1990).

The movements into the direction ofa political market should be welcomed andshould be stimulated from a normative point of view, because they can yield possiblesolutions for the non-market failures thusfar hampering an effective environmentalpolicy. They can be accelerated substantially by a successful political entrepreneur. Ofcourse, all this does not mean that the Wilsonian problem of the distribution of the costsand benefits of environmental policies or that the Olsonian problem of the organizationof large groups in environmental policies has been entirely eliminated.

12.5 ECO-DEMOCRACY VERSUS ECO-TOTALITARIANISM?

The theory of non-market failure appears to be a useful tool for analysis of environmental policy. A number of policies to tackle environmental problems have receivedonly small and fragmented support due to the weak organization of the beneficiaries. Alarge majority of society will enjoy only a small benefit per capita, whereas a smallminority will bear the costs of an improved environment. The opponents are often verywell organized and dispose over professional staffs with good access to bureaucraciesthat share the same values. They are very skilled in exploiting the technical issuesaround the implementation of policies. Moreover, it is very difficult to mobilize the

public around technical issues as is the case with the discussion on the introduction ofroad pricing (In 't Veld, 1991) and the reduction of manure production (DietzlTermeer,1991). This lobby is not counter-balanced by a well organized environmental movement.

It is sometimes suggested that the effectiveness of government intervention isfrustrated by the inherent limits of representative democracy, which cause serious delayin decision making, induce fragile coalitions and compromises, lead to compromisebased and, hence, ineffective policies and, last but not least, generate democraticresistance against radical but necessary policies. It would seem to follow from this thatif democracy is the cause of all problems of environmental policy, democratic institutions and procedures should be set aside in favor ofa form of 'enlightened dictatorship' that, although perhaps not legitimate in the beginning, could earn its legitimacy byenforcing effective solutions for environmental problems where democracy has failed.The alleged failure of democracy in the defense of the vital interests of 'spaceship earth'

Mirror, mi"or on the wall 217

and its population is then a legitimate argument for substituting for it a form of 'ecototalitarianism. 11

The theory of non-market failure provides evidence that democracy is not thecause of the problem and that substitution ofdemocracy by enlightened dictatorship willonly aggrevate the problem. Indeed, all of the failures distinguished by Wolf originatein the imperfection of democratic control rather than in its perfection. These failureswill be aggrevated rather than mitigated by constitutional reform in the direction oftotalitarianism. In our view, democracy is not part of the problem of, but rather theheart of the solution for environmental problems. Therefore, we believe that onlydemocracy can offer effective remedies for market as well as non-market failures in environmental policy. Democracy should not be abolished but should be strengthened, if

not for the sake of democracy itself, then for the sake of our environment and of ourfuture.

Recent publications on environmental problems and the policies to attack theseenvironmental problems can be considered as a benchmark for a fundamental change in

the public debate on environmental affairs. The necessity to punish the polluter isunderlined once again and additional, financial instruments are introduced for thispurpose. However, our analysis has made clear that it is not enough to count onnegative incentives, because these will be rolled-offto the consumer. In addition, skilled

political entrepreneurs are required to mobilize and organize public support for the theeffective solution of environmental problems, to manage the political agenda and to actas an important countervailing power against the lobbies of powerful interest groupsfrom various sectors of society. Every policy change that is effective will inevitably

produce winners and loosers and accordingly will provoke resistance from business andsociety. This is certainly true for the necessarily radical changes in environmentalpolicies. Only organized bottom-up political pressure will bring about such radical changes. However, it not very likely that a political entrepreneur will be successful unlesshe has at his disposal incentives, especially positive incentives like private goods tostimulate individuals to join the group and to foster their common interest: 'homo sanusin circumiecto sano'.

11 See for instance the plea of Robert L. Heilbronner for 'iron' or 'military' governments(Heilbronner 1974).

218

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Buchanan, J.M. (1983), "The achievement and the limits of public choice in diagnosinggovernment failure and in offering bases for constructive reform", in: H.Hanusch (00.), Anatomy ofgovernment deficiencies, Springer Verlag, Berlin.

Doel, H. van den (1979), Democracy and Welfare Economics, Cambridge.

Hafkamp, W.A. (1990), "Contouren van een schone economie" (Silhouettes of a clean

economy), inaugural lecture Katholieke Universiteit Brabant d.d. 16 November

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technical solution; it requires a fundamental extension in morality", Science1968, 162, 1234-1248.

Hardin, R. (1982), Collective action, resources for thefuture, John Hopkins UniversityPress, Baltimore.

Heilbronner, R.L. (1974), An inquiry into 1umum prospect, Norton, New York.

McKean, R.N. (1964), "Divergence between individual and total costs within the

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um on 'What's the use of users?', Paris.

Leibenstein, H. (1966), "Allocative efficiency vs. 'X-efficiency'", The AmericanEconomic Review, 56, 392-415.

Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieubeleid, NationaalMilieubeleidsplan, Tweede Kamer 1988-1989, 21337, nrs. 1-2.

Moe, T.M. (1980), The organization ofinterests. Incentives and the internal dynamicsofpolitical interest groups, University of Chicago Press, Chicago.

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Niskanen, W. A. (1971), Bureaucracy and Representative Government, Aldine-Atherton,Chicago.

Okun, A.M. (1975), &juality and efficiency: the big trade-off, The Brookings Institute,Washington.

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Ostrom, E. 1986), How inexorable is the tragedy of the commons? Institutionalarrangementsforchanging the structure ofsocialdilemmas, Indiana University,

Bloomington.Ostrom, E. (1988), "Institutional arrangements and the commons dilemma", in: D.

Feeny, H. Picht and V. Ostrom (oos.), Rethinking institutional analysis and

development, ICS Press, San Francisco.

Ostrom, E. (1990), Governing the commons. The evolution ofinstitutions for collectiveaction, Cambridge University Press, Cambridge (Mass.).

Peacock, A. (1980), "On the atonomy of collective failure", Public Finance, 1, 33-43.

Recktenwald, H.C. (1980), "Zur Theorie des Staatsversagens", Public Finance, 1, 7278.

Recktenwald, H.C. (1984), "The public waste syndrome: a comprehensive theory ofgovernment failures", in: H. Hanusch (00.), Public finance and the quest forefficiency, Wayne State University Press, Detroit.

Riker, W.H. and P.C. Ordeshook (1973), An introduction to positive political theory,Prentice Hall, Englewood Cliffs.

Rijksinstituut voor Volksgezondheid en Milieuhygiene (1988), Zorgen voor Morgen(Concern for Tomorrow), Bilthoven.

Rowley, C.K. (1978), "Market failure and government failure", in: J.M. Buchanan et

al., Economic analysis ofpolitics, Institute of Economic Affairs, London.Wagner, R. (1966), "Pressure groups and political entrepreneurs: a review article",

Papers on non-market decisionmaldng, 3, 161-170.

Wilson, J.Q. (1973), Political Organizations, Basic Books, New York.

Wilson, J.Q. (00.) (1980), The politics of regulation, Basic Books, New York.Wolf, Ch. jr. (1979), "A theory of non-market failure: framework for implementation

analysis", Journal ofLaw and Economics, 1979, 107-139.

Wolf, Ch. jr. (1983)," 'Non-market failure' revisited: the anatomy and physiology ofgovernment deficiencies", in: H. Hanusch (00.), Anatomy of governmentdeficiencies, Springer Verlag, Berlin.

Wolf, Ch. jr. (1987), "Market and non-market failures: comparison and assessment",Journal of Public Policy, 7, 43-70.

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research", Journal of Consumer Policy, 1,205-226.

ABOUT THE AUTHORS

Roeland J. in 't Veld (1942) studied law at the University of Leiden. He received hisPhD from the same university in 1975 (thesis: Meerderheidsstelsel en Welvaartstheorie,Stenfert Kroese, Leiden 1975). He is former director-general for Higher Education and

Scientific Research of the Dutch Ministry of Education. Presently, he is head of the

Public Administration Department of the Erasmus University of Rotterdam and dean of

the Netherlands School of Government in The Hague. Furthermore, he is chairman ofthe High Council of the European Institute of Public Administration in Florence.

Dirk Jan Kraan (1947) studied law and economics at the Erasmus University inRotterdam. He received his PhD from the same university in 1990 (thesis: Budgetarydecisions, Eburon, Delft 1990). He has been associate professor in Public Law at the

Erasmus University in Rotterdam. Presently, he is head of the Bureau for policy review

in the Budget Devision of the Ministry of Finance in the Netherlands.

Melvin J. Hinich (1939) studied mathematics at Carnegie Mellon University. Hereceived his PhD in statistics from Stanford University in 1963. Presently, he isprofessor of Political Science at the University of Ariwna in Austin. His researchinterests include time series analysis and the spatial theory of voting. On the latter

subject he has written many articles and in co-operation with Enelow a book: The

Spatial Theory ojVoting , Cambridge University Press, Cambridge 1984. In co-operation

with Staeden he has written the book Consumer Protection Legislation and the US FoodIndustry, Pergamon Press, New York 1980.

Gordon Tullock (1922) studied law at the University of Chicago. After obtaining his

degree he served with the US Foreign Service. Presently, he is Karl Eller Professor ofEconomics and Political Science at the University of Ariwna. He wrote many articlesand books in the field of public choice, law, economics and political science. Recentbooks include Autocracy, Kluwer, Boston 1987, Wealth, Poverty and Politics, BasilBlackwell, New York 1988, and The Economics ojSpecial Privilege and Rent Seeking,Kluwer, Boston 1989.

Jules J.M. Theeuwes (1944) studied business and consular sciences at the University of

St. Ignatius and economics at the University of Louvain. He received his PhD from theUniversity of Brittish Columbia in 1975 (thesis: Family Labour Force Participation and

Labour Supply Decisions). Presently, he is professor of economics at the Faculty of

Law, University of Leiden. Previously, he held academic positions at the ErasmusUniversity of Rotterdam and the Free University of Amsterdam. He was visiting

221

222

professor at the University of British Columbia and University of Wisconsin.Publications are predominantly in the area of micro-economics and labour economics,with special interest in labour supply, human capital investment and duration models.Recent publications include: "Transition Intensities in the Dutch Labour Market, 19801985" (with M. Lindeboom and M. Kerkhofs), Applied Economics, 1990; "PostwarDevelopments in Labour Economics" (with J. Hartog), in: F. van der Ploeg (ed.),Advanced Lectures in Quantitative Economics, Academic Press, London 1990.

Frans van Dijk (1955) studied economics at the Erasmus University in Rotterdam. Heserved for ten years with the Dutch Government, first at the Ministry of Housing,Physical Planning and Environmental Policy and subsequently at the Ministry ofFinance. Presently, he is associate professor of Public Economics at the University ofAmsterdam and is conducting research on the impact of the public sector on theperformance of the private sector.

Piet Rietveld (1952) studied econometrics at the Erasmus University in Rotterdam. Hereceived his PhD from the Free University in Amsterdam in 1980 (thesis: MultipleObjective Decision Making and Regional Planning, Free University Press, Amsterdam1980). Presently, he is professor in transportation economics at the Faculty ofEconomics, Free University, Amsterdam. His research interests include the relationshipsbetween transport, infrastructure, regional development, and the environment.

Leo J.G. van Wissen (1956) studied human geography at the Free University inAmsterdam. He received his PhD from the same university in 1987 (thesis: ModellingUrban Housing Market Dynamics, North-Holland, Amsterdam 1988). Since 1988 he isresearch fellow of the Royal Netherlands Academy of Sciences and associated with thedepartment of Spatial Economics at the Free University of California at Irvine (19881989) and with the Universite Catholique de Louvain-Ia-Neuve, Belgium (1989-1990).Together with Dr. Annemarie Rima he has published several articles and a book onhousing market modelling. He also has extensive research experience in transportationscience and written several research articles in transportation journals, such asTransportation Research and Transportation.

Frank J. Dietz (1956) studied economics at the University of Tilburg and the Universityof Amsterdam. Presently, he is associate professor of Public Administration at theErasmus University of Rotterdam. He edited several books and wrote articles on variousenvironmental issues, recently with Jan van der Straaten and Menno van der Velde,

About the authors 223

"The European Common Market and the Environment: the Case of the Emission of NOx

by Motorcars", Review of Political Economy, 1991.

Katrien I.A.M. Termeer (1960) studied agricultural sciences at the Agricultural

University of Wageningen. Since 1987 she is affiliated to the department of PublicAdministration of the Erasmus University in Rotterdam. She has published a number ofarticles on agricultural policy making, especially in regard to the manure problem andon environmental planning. She is co-editor of a book on new approaches to societalsteering: Steering, Autopoiesis and Configuration Theory, Kluwer, Deventer 1991,forthcoming.

Anna Laan (1962) studied economics at the Free University in Amsterdam. Shespecialized in Environmental Economics. Presently, she is affiliated with theAgricultural University in Wageningen. Her research interests include the environmental

aspects of the manure problem in the Netherlands.

los de Beus (1952) studied economics at the University of Amsterdam. He received hisPhD from the same university in 1989 (thesis: Marla, democratie en vrijheid, TjeenkWillink, Zwolle 1989). Presently, he is associate professor of Economics at theUniversity of Amsocrdam and professor of Political Theory at the University of Twente.His research interests include contemporary political philosophy, institutional eocnomicsand comparative policy studies. His current research focuses on the explanation of civilegalitarianism in the Netherlands.

Hans I.G.A. van Mierlo (1953) studied political science at the Catholic University ofNijmegen. He received his PhD from the Erasmus University in Rotterdam in 1989(thesis: Spatial Analysis of Electoral Competition. Demand and Supply of EconomicPolicy in Representative Democracy: the Netherlands 1946-1982, Eburon, Delft 1989).Presently, he is associate professor of Public Economics at the University of Limburg.

Frans K.M. van Nispen (1951) received his M.P.A. from the University ofl-eiden and

worked for the government as a policy analyst before he returned to academia.

Presently, he is associate professor of public policy at the Public AdministrationDepartment of the Erasmus University of Rotterdam. He is author of several articles onretrenchment and cut-back management and co-editor of a book on policy change called(in translation): The big operations: the government under the knife or queering one'sown pitch, Kluwer, Deventer 1986.

SUBJECT INDEX

acid rain, 18,95, 151-153, 155-156

acidification, 126, 127, 149, 151-153,

155, 160

-of soil and air, 149

agenda building, 10

amenity rights, 186, 191, 196

ammonia, 126, 127, 130, 136, 138,

146, 149, 151-155

Bill Riding (BR), 114, 115-120

- and allocation, 114

- and distribution, 116

- and institutional norms, 117

Board of Agriculture, 135-145, 159

Coase theorem, 170-171

commuting cost forfeit, 101

compensation test, 116

constitution, 188, 190

- Dutch, 186, 195

- ecological, 196

- economic, 5-6, 169

constitutional, 4-5, 7, 169, 170, 184,

217

- economics, 2, 4-6, 8, 13

- level of choice, 4, 6, 9

contractarianism, 9-10, 12, 181-182,

185, 187, 193-194, 197,200

- as a method of policy, 10, 182, 187,

195, 199-200

convexity, 8, 52-53, 59

corporatism, 158-159

covenant, 10, 185, 197-199

eco-democracy, 207, 216

eco-totalitarianism, 207, 216

entrepreneurial policies, 10, 210-211,

215

Green Front, 159

ground water, 126-127, 149

225

ideological dimensions, 19-26, 30-31,

34, 149

ideology, 8, 17-24,26, 32, 38, 186

- and science, 36

implementation, 10-13, 17,34,77, SO,82, 117, 119-120, 136-138,

149, 155-158, 179, 186, 197,

199, 207, 216

impossibility theorem, 118

individual moralism, 2-3, 5-7

information, 20, 23, 27, 35, 38, 52-53,

57-58, 62-63, 71-75, 77-78,

81-86, 111, 115-117, 134,

136, 149-150, 160, 176, 185,

189, 191-192,200

- role of, in manure policy, 9, 11, 149

150, 160

infrastructure, 91-94, 98, 101, 101,

109, 114, 117

- instruments concerning, 96

- regulation of, 97

- taxation of, 97

institutional rules, 4-5, 7-8

institutions, 8,11,13,33,49,64,117

120, 133, 158-159, 183, 216

- fragmented, 118-120

instruments, 8, 11-13, 23, 37, 51-53,

62, 71-72, 76-77, 79-86, 100

101, 103, 108, 111, 123-124,

131, 134, 138, 142-143, 149,

154, 176, 179, 189, 191,215,

217

- effectiveness of, 77

- effects on the economic system, 78

- enforcement of, 77

- feasibility of, 77

226

- in manure policy, 124, 130-131, 144

145, 149, 154-155, 160

- in transport policy, 92-93, 96-97, 99,

108

Interim Act, 128, 156-157

internalities, 208-210

internalization, 43, 123, 189, 197-198

Kaldor-Hicks-Scitovky test, 116

local public good, 9, 67

- environmental quality as, 9, 67

Manure Act, 128, 136, 138-140, 156-

158

manure surplus, 129-130, 132-133, 136,

138-139, 149-160

market failure, 30, 54, 63

minority group goods, 174

mobility, 91-92, 94, 100-101, 109, 119

- and income distribution, 104- instruments concerning, 96-97, 99

- reduction enforcement plans, 100

network planning, 97

nitrate, 126, 149-154, 160

noise, 63, 93-94, 97, 99-100,108,110

normal good, 67

- environmental quality as, 67

Nuisance Act, 139

Nuisance Fund, 139

Pareto optimality, 12,54-55,58-60,62

63, 123, 170, 189, 194, 207,

215

parking, 93-94, 97-98, 101

phosphate, 126, 128-130, 140, 149-160

Pigovian, 13, 68, 123

- fee, 51-53, 55-58, 60-63, 65, 68

- tax, 5, 8, 134, 173, 186, 189

policy cycle, 10-11, 83, 86

pollution rights, 124, 138, 140

pressure groups, 10, 42-43, 75-76, 79,

83, 86, 114

private domain, 168

production rights, 138, 140-141-142,

144

property rights, 5-6, 8-9, 12, 21, 32,

34-35, 167-175, 177-179

- and regulation, 167-168

public choice, 2, 4, 6-7, 9-10, 13, 38,

51, 53, 67, 78-79, 92-93, 98,

124, 131, 171, 173, 175-176

- moderate, 2, 4-6, 8

- radical, 2-3, 5, 7

public domain, 168

- pure public good, 67

- environmental quality as, 67

regulation, 5, 6, 8-10, 18, 30-32, 44

45, 47, 51, 53, 62, 66, 77,

101-103, 106-109, 111, 116

117, 119, 167-169, 175, 185

187, 198-199,207,211,215

- in manure policy, 124, 128, 130, 132,

135-136, 140-145, 155

- in transport policy, 91, 93, 97-103,

114

regulatory tax, 43, 51, 78,82, 173-178

- in manure policy, 124, 133, 138, 142-

144

road pricing, 9, 100, 105, 111-112, 114

social contract (sq, 183, 197

- administrative, 185

- constitutional, 184-187

- corporative, 184-187

- democratic, 184-187

- foundational, 183-187

- hypothetical, 183-187

Soil Protection Act, 156-157

Subject index

spatial theory of voting, 17, 19-20,33,

38

standards, 11, 17, 51, 63-64, 73, 76,

157, 175, 178, 186, 189, 192,

198, 208, 210, 216

- for using manure, 123, 128-134, 136

137, 151, 152, 154-155, 157

- for vehicles, 98-99, 102-104

strategies, 5, 17, 72, 78, 81, 81-85,

194, 197

- of buraucrats, 81-82

- of politicians, 81

subsidies, 5, 6, 9, 53, 56, 62, 65-66,

68, 77, 100, 105, 107, 123,

124, 138-140, 145, 155, 173

174,186,211

surface water, 126, 149, 151

targets, 11, 72, 76, 78-79, 81-86, 98

100, 149, 152-153, 157-158,

160toll levies, 100

tradeable permit, 10, 12, 46, 52-53, 56,

62-65,68,93, Ill, 114, 167,

175-177

- and property rights, 167, 177-178

- in transport policy, 106-109

traffic accidents, 93, 94

tragedy of the commons, 213-214

uncertainty, 7, 9, 12, 29, 37, 52-53,

58-59, 62, 71-74, 84-85, 116

117, 149, 176, 189

- about environmental problems, 12, 72,

149

- about instruments, 13, 77, 85, 149

- about private sector response, 72, 75

- about targets, 76

- originating in chance, 71-72, 74

227

- origination in lack of information, 58,

71-74

vehicle supply, 98

AlITHORINDEX

Aalst, van, 152, 161

Aarts, 196, 201

Acht, van, 199, 201

Albert, 181, 203

Algemene Rekenkamer, 133, 145

Algra, 150-151, 161

Anderson, 145

Arrow, 86, 118-119, 121

Bachrach, 86

Baratz,86

Barry, 188-189, 194,201,211,218

Baumol,69, 171, 179

Beek, van, 95, 109

Benjamin, 200-201

Berg, van den, 201

Beus, de, 181,201

Biezen, 145

Bishop, 145

Blinder, 186, 201

Bohm, 123, 145

Bolsius, 157, 161

Bos, 103, 109

Bosker, 161

Brennan, 184,201, 190

Bressers, 201

Breton, 209, 218

Broecke, van den, 92, 109

Bromley, 123, 146

Buchanan, 3-8, 13, 44-45, 49, 51-53,

65, 67-69, 77, 86, 101, 103,

109, 179, 181-182, 187, 189,

190-191, 193-195, 201-202,

218

Button, 98, 109

Cachet, 77, 86

Cahoon, 19, 23-24, 38

229

Centraal Bureau voor de Statistiek, 109,

146

Centraal Bureau voor de StatistiekJ

Landbouw-Economisch

Instituut, 156, 161

Chow, 98, 109

Coase, 170-171, 179, 185,202

Coenen, 201

Cohen, 184,202

Coleman, 184, 202

Cooter, 185, 202

Cramer, 137, 146

Crocker, 146

Daalder, 197, 202

Dahrendorf, 185, 202

Dales, 46, 48-49, 175, 179

Damen, 199, 201

Davis, 19-20, 22-23, 34, 38

Deemen, 121

Dekker, 154, 161

Diederen, 152, 161

Dienst Milieuhygiene, 151, 161

Dietz, 123, 146

Dijk, van, 68, 71, 152, 161

Doel, van den, 184, 201, 218

Downing, 123, 146

Downs, 19-23, 38, 72, 81, 83, 86

Dryzek, 200, 202

Elster, 183-184, 202

Enelow, 17, 19-20,23-24,38

EUROSTAT, 91, 110

Forte, 202

Fosfatennota, 156, 161

Freeman, 146

Frey, 76, 87, 181, 186, 189,202

Frouws, 133, 146, 159, 158, 161

Gauthier, 182, 187, 193-195, 201-202

230

Geleuken, van, 161

Gilhuis, 199, 202

Goodijk, ISO, 162

Goodin, 185, 199, 202

Gooijer, de, 155

Groot, de, 38, 133, 146

Guiliano, 110

Haan, de, 151, 162

Hafkamp, 215-216, 218

Hahn, 189, 198, 202-203

Hahnel, 181, 203

Hamlin, 184, 203

Hanf, 123, 146

Hammerton, 110

Hardin, 200, 203, 211-214, 218

Hart, 169, 179

Hartog, den, 132, 146

Heilbronner, 218

Hemerijck, 197, 203

Henkens, 150-151, 154, 161-162

Henselmans, 151, 162

Hinich, 17, 19-24, 38

Hoehn, 146

Hoogervorst, 145

Hoogh, 132, 146

Intergovernmental Panel on Climate

Change, 73, 86

International Energy Agency, 123, 146

Johansen, 199, 203

Jones-Lee, 95, 110

Kanafani, 95, 110

Kelman, 146

King, 185, 203

Kiser, 218

Klamer, 199, 203

Klok, 199, 203

Klundert, van de, 128, 146

Kolm, 182, 187, 191-195,203

Koolhaas, 77, 86

Kossmann, 197, 203

Kraan, 167, 179

Kukathas, 183, 203

Kymlicka, 183, 188, 203

Lamure, 94, 110

Landbouwschap, 135-136, 147

Lande Cremer, de la, 150, 151, 162

Landelijk Milieu Overleg, 137, 147

Langeweg, 127, 147

Lave, 31, 38

Lee,203

Leibenstein, 208, 218

Lessnoff, 182, 203

Leusden, van, 92, 109

Lexmond, 151, 162

Lindblom, 83, 86

Lijphart, 185, 203

Landelijk Milieu Overleg, 51, 69

Logeman, 151, 162

Lomasky, 184, 201

Luban, 200, 203

Luesink, 147

Lugt, van, ISO, 162

MacLean, 186, 203

MacNeil, 203

MaIer, 123, 146-147

McKean, 218

McKelvey, 34, 38

Ministerie van Landbouw, Natuurbeheer

en Visserij, 162

Ministerie van Landbouw en Visserij,

147, 155-156, 162

Ministerie van Volkshuisvesting, Ruimt.

Ordening en Milieubeleid, 153,

218, 162

Mishan, 186, 203

Moe, 214, 218

Author index

Molenaar, de, 151, 162Molhoek, 162Mueller, 13, 181, 203Munger, 20-23, 38Munzer, 188, 203Musgrave, 207, 218Naess, 204Nentjes, 51, 69, 198, 204Nijkamp,86Niskanen, 209, 218Nispen, van, 207NRLO, 159, 161Oates, 69, 171, 179OECD, 79, 87, 102, 110Offe, 181, 204Okun, 218Olson, 83, 87Opschoor, 123, 147Ordeshook, 24, 38Ostrom, 214, 219Paehlke, 186, 204Pappi, 24, 38Parfit, 204Peacock, 207, 219Pearce, 185, 204Peeters, 110Pettit, 183-184, 201Philips, 110Pigou, 43-45, 49, 123, 147, 173, 179Poelma, 150, 161Pogge, 188-189, 204Pollard, 23, 38Poortinga, 162Post, 154, 162Produktschap van Vee en Vlees, 132,

147Przeworski, 185, 204Psimopoulos, 36, 38

231

Randall, 146Rawls, 182, 187-188, 191, 193-195,

203-204Recktenwald, 207, 219Rhoads, 186, 204Riemsdijk, van, 151, 162Riker, 219Ringeling, 114, 121Rijksinstituut voor Volksgerondheid enMilieuhygiene, 219Rowley, 219Russell, 123, 145Sagoff,204Schelling, 184, 204Scheltinga, 150, 161Schendelen, van, 204Scholler, 162Sen, 186, 204Sociaal Cultureel Planbureau, 110Sociaal Economische Raad, 51, 69Shogren, 146Siebert, 181, 204Siagstad, 183, 202Sluismans, 152, 163Stee, van der, 124, 147Stichting voor Economisch Onderwek,

110Stichting Natuur en Milieu, 136, 147Stroebe, 76, 87Sugden, 181, 204Tak, van der, 218Termeer, 123, 138Theocharis, 36, 38Tiebout, 67, 69Tullock, 4, 8, 11-13, 39, 45, 49, 51

53, 65, 67-69, 77, 86, 101,103, 109, 179, 189, 201

Turner, 185, 204

232

Ulen, 185,202

Vallentyne, 204Vanberg, 201Veelenturf, 128, 146Veen, van der, 147, 188, 204Veld, in 't, 111, 114, 116, 121Vleugel, 99, 110Vollenbergh, 87Vos, 123, 147Wagner, 213, 219Waldron, 204Weale, 181, 204-205Weitzman, 53, 56, 69, 176, 179Wickham-Jones, 185, 203Wijnands, 147, 154, 161Wilson, 205, 210, 211, 216, 219Wintrobe, 209, 218Wolf, 207-208, 210, 217, 219Xenos, 205Young, 219

Economy & Environment

1. F. Archibugi and P. Nijkamp (eds.): Economy and Ecology: Towards SustainableDevelopment. 1989 ISBN 0-7923-0477-2

2. J. BojO, K.-G. Mliler and L. Unemo: Environment and Development: An EconomicApproach. 1990 ISBN 0-7923-0802-6

3. J. B. Qpschoor and D. W. Pearce (OOs.): Persistent Pollutants: Economics and Policy.1991 ISBN 0-7923-1168-X

4. D. J. Kraan and R. J. in '1 Veld (OOs.): Environmental Protection: Public or PrivateChoice. 1991 ISBN 0-7923-1333-X

KLUWER ACADEMIC PUBLISHERS - DORDRECHT / BOSTON / LONDON

environmental protection: public or private choice

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