Wednesday, December 15, 2010

Command & Control


Command and Control is a prejudicial concept. It implies a contrast with an alternative that is voluntary and free. However, all rights are made effective by legal commands to the non-rights holder to keep out of the way of the rights holder. Without coercion, no market.

A requirement to avoid downstream damage can be implemented by
1. A tort action by the downstream owners threatening an injunction, to sue for damages, (claim damages if infringed upon). This requires individuals to bring a court action and bear the costs thereof.
2. A regulation gives an opportunity to the downstream owner implemented by a public agency who bears the transaction cost of the prosecution and asks for a fine or injunction.

In the case where the rights holders are many with individually small damages, cost of court action may be prohibitive. Regulation with administrative implementation is equivalent to a class action suit for tort liability.

Usually the opportunity created by a regulation can’t be given up by selling the right. Though in some cases, the would-be actor without the right to act, may buy off the rights holders convincing them not to ask the government to prosecute.

The language of “command and control” assumes that there is a market alternative that is wholly voluntary. False! If the so-called “subsidy” is financed with a tax (common for HEC goods), it is hardly voluntary. There may be unwilling riders. This fact is not seen when payments for environmental services are paid for by foundations, NGOs and US AID. Coercion is inherent in HEC goods, no matter the institution, market or otherwise.

The concept of “environmental services” is prejudicial of rights. Much of the scholarship is thereby shifted to how much must be paid to obtain it. Alternatively, research might have focused on how legal alternatives give different opportunities to different interests. There is enough variation in rules out there to measure the effects of alternatives. Environmental interests are not homogeneous. Some, if owners, would sell if the price is right. But, since it is not possible for some to sell and some keep, the rules for deciding to sell are critical. The same issues arise in any cap and trade system. Estimating the supply curve for environmental services makes it sound like an economics question, but exploring the performance of alternative institutions that produce different prices is equally an economics question.

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