Framing Environmental Policy in the European Union
New Horizons in Environmental Economics series
Chapter 9: Conclusion
How can environmental regulatory authority be allocated most eﬃciently among federal and state governments? There are no easy answers to this question, even though it has been a central issue in environmental federalism research for 25 years (see, for example, Revesz, 1992, 1997; Oates, 1994, 1998, 1999; Oates and Schwab, 1988, 1989; List and Gerking, 2000). The driving force behind this book has been to ﬁnd the answers. It is, however, hard to reach a general conclusion because the answer depends on so many things. The public ﬁnance literature provides a standard answer: if the economy is perfectly competitive and distortion free and if available tax instruments are unconstrained, then both regional and national governments have incentives to implement eﬃcient environmental policies. But in a secondbest world with initial distortions locally determined, environmental regulations may be suboptimal when jurisdictions compete to attract capital (List and Gerking, 2000). For several reasons this standard answer is much too simple. First, the advantages of competition in the private sector are well understood. In the public sector, however, the implications of competition are less clear. Two divergent strands in the public ﬁnance literature point in opposite directions. The ﬁrst strand argues that competition among governments leads to distorted outcomes (see, for example, Cumberland, 1979, 1981), while the other strand argues that such competition is eﬃciency-enhancing (see, for example, Tiebout, 1956). When competition promotes eﬃciency and when it is detrimental to social welfare is still an unresolved question. Second, when political...
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