Environmental Governance: An Economic Perspective

1
Environmental Governance An Economic Perspective

• Thomas P. Lyon
• University of Michigan

2
The Philosopher King

• Neo-classical economics
• Identifies an externalities
• Proposes a Pigouvian tax
• Enforces it perfectly and costlessly

3
Environmental Economics

• Focus on a philosopher king (regulator) with
  information problems
• Instrument choice
• Yes, there is an efficiency story, but in
  practice this tends to be driven by politics
• Monitoring and enforcement
• A mystery why do firms comply?

4
Political Economy

• Rent seeking, lobbying, campaign contributions,
  voting, agenda control
• The policy life cycle

5
Corporate Environmentalism The Policy Life Cycle
Deflect Enforcement
Role of Corporate Environmentalism
Impact on the Firm
Influence Regulations
Preempt New Laws
Time
Development Issue Identified
Politicization Interest Groups Form
Legislation New Laws Enacted
Implementation Regulation Enforcement
6
Voluntary Approaches

• Self-Regulation
• Preempt a regulatory threat or an NGO boycott
  (private politics)
• Influence Regulation
• Shape Enforcement
• Negotiated Agreements
• Preempt regulation and lower transaction costs
• Public Voluntary Agreements
• Do something in the absence of a regulatory threat

7
Research Needs

• Commitment power of government
• Rigidity vs. Flexibility
• Imperfect information and disclosure
• Power of investors
• Behavior of NGOs
• Role of voluntary approaches in DCs and LDCs