Varieties of Capitalism and Climate Change
Chapter 4: How Rules are Made: State Regulations in the European Union, US and Japan
The differences voiced in the climate change negotiations speak to larger differences that have developed among these countries in terms of the roles they feel that government and markets should play in environmental protection and where responsibility for taking action lies. (Schreurs, 2002: 10) Changing the behavior of economic actors to internalize environmental externalities is unlikely without effective regulation. The liberal economic argument is that economic actors responsible for environmental damage will not voluntarily face the costs they impose on society. They must be forced to do so. Traditionally, the degree to which environmental regulations are effective is therefore seen in material terms: when regulations are introduced, their stringency, effective monitoring of those subject to them, penalties for non-compliance and the like. There is no doubt that regulation is necessary and alters firms’ behavior. However, from an institutional perspective, understanding the way regulations are developed – i.e. how rules are made – is necessary to explain the extent of compliance with them, and therefore their degree of effectiveness. The proposition in this chapter is that the institutional basis for developing regulations explains their effect and the level of compliance with them more than the material facts of the regulations themselves. Specifically, when the institutional basis of state–firm relations encourages cooperation, consensus and a longer-term view rather than short-term gains, as in coordinated market economies, the effect of regulations and compliance with them is greater. The converse is the case in liberal market economies. First, the institutional basis of state–firm relations...
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