Edited by Anthony Heyes
Chapter 1: Law and economics of the environment: an overview
1. Law and economics of the environment: an overview Anthony Heyes ‘Law’ – in its various shapes and forms – has always been central in society’s protection and management of its natural environment. The boundaries between legal, regulatory and other approaches to environmental policy are blurred. For current purposes a watertight definition or boundary of what constitutes ‘law and economics’ isn’t needed, and we don’t venture one: the book contains a set of chapters that fall within any reasonable definition.1 The coverage is not, of course, exhaustive. The discipline of economics has incentives as one of its central organizing principles, and this is arguably the defining feature of ‘the economic approach’ to thinking about law. This tradition is reflected in the chapters here. PROPERTY RIGHTS AND COASE The celebrated Coase Theorem dictates that under a particular set of assumptions – in particular in a world without transactions costs – decentralized bargaining will lead to the efficient use of resources. Provided there is a welldefined initial allocation of property rights in place, disputing parties will bargain until such efficiency is achieved regardless of what that initial allocation looks like. The logic is pleasing in its simplicity, and second nature to economists trained since the 1960s. Consider a world populated by a single polluting factory and a single household. If the factory owner has the right to pollute, the household will ‘bribe’ him to reduce his emissions down to the point at which the marginal private benefit to the householder of cleaner air just equals the...
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