Environmental Regulation in a Federal System
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Environmental Regulation in a Federal System

Framing Environmental Policy in the European Union

  • New Horizons in Environmental Economics series

Tim Jeppesen

In this important book Tim Jeppesen investigates environmental regulation in a federal system and addresses the underlying question of whether regulation should be decided centrally, by EU institutions, or de-centrally, by individual member states. Whilst simple economic reasoning presumes that transboundary externalities require central solutions and local externalities need local solutions, the author finds that the real answer is much more complicated.
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Chapter 9: Conclusion

Tim Jeppesen


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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