Pollution can be controlled with less government regulation

Of course, individuals could band together for the collective purpose of contributing toward the purchase of pollution rights, but recruiting people into such a cooperative effort would not be easy. Each person would recognize that, unless others joined the effort in large numbers, an individual contribution would do little good and would cost more than it was personally worth. On the other hand, they also realize that, if many people contribute, they will be able to benefit as free riders from the clean air that others buy. Either way, individuals can see a personal advantage in not contributing to the common cause.

This is not meant to imply that the desire to reduce pollution will motivate no purchases of rights. Environmental organizations exist that, to some degree, have overcome the free rider problem, and such groups likely would buy and hoard some rights. Nevertheless, it would be naive to believe that such purchases would come close to reflecting the full social value of clean air if the government issued rights in excess of the amount needed to support the efficient level of pollution. The best that can be hoped for is that the number issued will allow something close to the efficient level when they are bought only for the purpose of polluting. Even without reduction purchases motivating the efficient level of pollution, the minimum abatement cost feature of the rights approach still should make it a very attractive means for controlling the problem. This is particularly true given the alternative of having the government directly regulate and control pollution sources.

The direct regulation and control approach has the government determine an acceptable level of pollution and then attempt to achieve it by requiring individual polluters to reduce their discharges by specified amounts and/or by mandating the use of particular abatement technologies. In determining the acceptable over-all level of pollution, this scheme is on an equal footing with the rights approach. In both cases, the acceptable level is determined through the political process. However, direct regulation and control can not be expected to achieve the required effect as cheaply as will a market in rights. Not knowing the least-cost abatement approach for each pollution source, the government agency charged with control generally will require a uniform approach across each class of polluters, despite the fact that the most appropriate plan will vary from source to source. Neither will the government have the data necessary to determine the least-cost reduction pattern. In the absence of market exchange, this information effectively is unknowable.

Despite the fact that environmental policy in the U.S. has taken the direct regulation and control approach almost exclusively, there has been a slight shift in the direction of more flexibility and reliance on market incentives. For example, the EPA recently has moved toward what has become known as the bubble approach. Rather than specifying the amount of pollution allowed from each source within a plant or industrial complex, a hypothetical bubble is placed over the area. It is the overall level generated within this bubble that the EPA controls. This gives the polluter the needed flexibility to adjust the contamination from each source in such a way that the costs of control are minimized subject to the over-all restriction on emissions within the bubble.