So who regulates pollution most effectively - companies, governments or citizens? And under what type of regulatory framework - prescribed limits, taxes or tradable permits?
The answer, not surprisingly, is a complicated one, as a paper in this month's Journal of Environmental Economics and Management illustates. Authors Maleug and Yates take you through a number of scenarios and with the aid of some hefty equations, demonstrate that an informed, active citizenry can make a big difference - particularly when they are allowed to compete in the market to purchase and retire permits. In fact the authors claim that the mere presence of citizens in the market brings advantageous results, as it reduces the incentive for industry to lobby for an oversupply of permits.
So is this really about market competition? In some scenarios maybe, but the broader argument points to another market attribute - transparency. The citizens groups gain their influence because they have access to the same market information as their industry counterparts: the competition element comes second in terms of impact. The US Toxic Release Inventory is the go-to example in this respect. And IFC's new sustainability policy speaks to improved project outcomes through informed participation.