The Costs and Benefits of Environmental Regulation

The Costs and Benefits of Environmental Regulation

Imad A. Moosa and Vikash Ramiah

The Costs and Benefits of Environmental Regulation presents a thorough investigation into environmental regulation, its economic and financial effects and the associated costs and benefits. A variety of issues, pertaining to regulation in general and environmental regulation in particular, are examined. These issues include the theories of regulation and how it is viewed in terms of the free market doctrine, forms of regulation, command-and-control regulation as opposed to market-based regulation and the cost–benefit analysis of environmental regulation.

Chapter 3: Theories of regulation

Imad A. Moosa and Vikash Ramiah

Subjects: economics and finance, environmental economics, environment, environmental economics, environmental governance and regulation, politics and public policy, environmental governance and regulation


Theories of regulation are of interest not only for economists, but also for legal and political scholars. The debate on the pros and cons of regulation is shaped by two conflicting propositions. The first proposition is that big businesses have much greater economic power than ordinary citizens – hence the citizens need protection, which the government can provide through regulation. The second proposition is that government bureaucracy can be so intrusive that it has adverse economic consequences or at best it is a nuisance, for example the prohibition, for the sake of biodiversity, of the killing of some members of the animal kingdom that live in our homes uninvited (many people share their homes with possums, which invariably inflict sleep deprivation on the household). These propositions are diametrically opposite to each other: the first tells us that regulation is a duty that the government is elected to perform to preserve public interest; the second says that regulation has adverse economic consequences, in which case it cannot be in the public interest. There is also the middle-of-the-road view that regulation has costs and benefits, which means that regulatory measures are adopted if and only if they produce benefits that outweigh the associated costs. The problem in this case is to demonstrate that benefits outweigh costs, or vice versa. Theories of regulation are not confined to the economics and finance literature – rather they span other fields, including sociology, psychology, political science, public administration and law.

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