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Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?

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Article Contentsp. [119]p. 120p. 121p. 122p. 123p. 124p. 125p. 126p. 127p. 128p. 129p. 130p. 131p. 132Issue Table of ContentsThe Journal of Economic Perspectives, Vol. 9, No. 4 (Autumn, 1995), pp. 1-248+i-viiiVolume Information [pp. 246 - 248]Front Matter [pp. 1 - 2]Symposia: The Monetary Transmission Mechanism"Symposium on the Monetary Transmission Mechanism [pp. 3 - 10]The Monetary Transmission Mechanism: An Empirical Framework [pp. 11 - 26]Inside the Black Box: The Credit Channel of Monetary Policy Transmission [pp. 27 - 48]Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective [pp. 49 - 72]The Mirage of Fixed Exchange Rates [pp. 73 - 96]Symposia: Might Environmental Regulation Promote Growth?Toward a New Conception of the Environment-Competitiveness Relationship [pp. 97 - 118]Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm? [pp. 119 - 132]Human Capital vs. Signalling Explanations of Wages [pp. 133 - 154]Islamic Economics and the Islamic Subeconomy [pp. 155 - 173]The Economic Case Against Drug Prohibition [pp. 175 - 192]Women in the Economics Profession [pp. 193 - 206]Retrospectives: The Convergence Debate Between David Hume and Josiah Tucker [pp. 207 - 216]Anomalies: The Flypaper Effect [pp. 217 - 226]Recommendations for Further Reading [pp. 227 - 234]Correspondence [pp. 235 - 240]Notes [pp. 241 - 245]Back Matter [pp. i - viii]American Economic AssociationTightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?Author(s): Karen Palmer, Wallace E. Oates, Paul R. PortneySource: The Journal of Economic Perspectives, Vol. 9, No. 4 (Autumn, 1995), pp. 119-132Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/2138393Accessed: 08/01/2009 05:12Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available athttp://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unlessyou have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and youmay use content in the JSTOR archive only for your personal, non-commercial use.Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained athttp://www.jstor.org/action/showPublisher?publisherCode=aea.Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission.JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We work with thescholarly community to preserve their work and the materials they rely upon, and to build a common research platform thatpromotes the discovery and use of these resources. For more information about JSTOR, please contact [email protected] Economic Association is collaborating with JSTOR to digitize, preserve and extend access to TheJournal of Economic Perspectives.http://www.jstor.orgJournal of Economic Perspectives-Volume 9, Number 4-Fall 1995-Pages 119-132 Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm? Karen Palmer, Wallace E. Oates, and Paul R. Portney M S ff ichael Porter and Claas van der Linde have written a paper that is in- teresting and, to us at least, somewhat astonishing. It is a defense of environmental regulation-indeed, an invitation to more stringent reg- ulation-that makes essentially no reference to the social benefits of such regula- tion. This approach contrasts starkly with the methods that economists and other policy analysts have traditionally used when assessing environmental or other reg- ulatory programs. The traditional approach consists of comparing the beneficial effects of regu- lation with the costs that must be borne to secure these benefits. For environmental regulation, the social benefits include the reductions in morbidity or premature mortality that can accompany cleaner air, the enhanced recreational opportunities that can result from water-quality improvements, the increased land values that might attend the cleanup of a hazardous waste site, the enhanced vitality of aquatic ecosystems that might follow reductions in agricultural pesticide use or any of the other potentially significant benefits associated with tighter standards. From this benefit-cost approach emerges the standard tradeoff discussed in virtually every economics textbook. Porter and van der Linde deny the validity of this approach to the analysis of environmental regulation, claiming it to be an artifact of what they see as a "static mindset." In their view, economists have failed to appreciate the capacity of * Karen Palmer is a Fellow at Resources for the Future, Washington, D. C. (e-mail: [email protected]:org). Wallace E. Oates is Professor of Economics, University of Maryland, College Park, Maryland, and University Fellow, Resources for the Future, Washington, D. C. ([email protected]). Paul R Portney is Vice President, Resources for the Future, Washing- ton, D. C. (portneyrftforg).120 Journal of Economic Perspectives stringent environmental regulations to induce innovation, and this failure has led them to a fundamental misrepresentation of the problem of environmental regu- lation. There is no tradeoff, Porter and van der Linde suggest; instead, environ- mental protection, properly pursued, often presents a free or even a paid lunch. As they put it, there are lots of $10 bills lying around waiting to be picked up. We take strong issue with their view. If this were simply a matter of intellectual sparring, it would be inconsequential outside academe. But their view has found a ready audience in some parts of the policyinaking cornmunity. For example, Vice President Gore (1992, p. 342) writes that "3M, in its Pollution Prevention Pays program, has reported significant profit improvement as a direct result of its in- creased attention to shutting off all the causes of pollution it could find." If envi- ronmental regulations are essentially costless (or even carry a negative cost!), then it is unnecessary to justify and measure with care the presumed social benefits of environmental programs. Stringent environmental measures (of the right kind) are good for business as well as the environment; in the Washington parlance, we have ourselves a "win-win situation." Not


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