Internalize Externalities. How Difficult Can That Be?

Being a poor country environmental lawyer, I don’t often delve into the academic world.  I therefore just recently caught up to the article written last year by my friend Dan Esty.  Red Lights to Green Lights:  From 20th Century Environmental Regulation to 21st Century Sustainability, is a wonderful synthesis of a lot of work on how to build a better regulatory mousetrap.

The title does not exactly roll off the tongue, so I’ll do my best to shorten it.  And I can’t quite attain the one-word perfection of “plastics,” from The Graduate, but I think I can bring it down to two:  “Internalize externalities.”

It’s not a new idea, but that doesn’t minimize its importance.  For blog purposes, I’ll highlight just two points Dan makes.

  • Setting emission limits stifles innovation, because regulated industries have no incentive to attain continuous improvement.
  • Technological advances since the development of most of our environmental regulations in the 1970s and 1980s facilitate the use of market mechanisms and make them much more efficient and trustworthy.

And so I say, there’s a great future in internalizing externalities.  Think about it.

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