Environmental and Resource Economics 11(3–4): 587–602, 1998.© 1998 Kluwer Academic Publishers. Printed in the Netherlands.587Disclosure Strategies for Pollution ControlTOM TIETENBERGDepartment of Economics, Colby College, Waterville, ME 04901, USA(email: [email protected])Abstract. Disclosure strategies, which involve public and/or private attempts to increase theavailability of information on pollution, form the basis for what some have called the third wavein pollution control policy (after legal regulation – the first wave – and market-based instruments –the second wave). While these strategies have become common in natural resource settings (forestcertification and organic farming, for example), they are less familiar in a pollution control context.Yet the number of applications in that context is now growing in both OECD and developing coun-tries. This survey will review what we know and don’t know about the use of disclosure strategies tocontrol pollution and conclude with the author’s sense of where further research would be particularlyhelpful.Key words: information disclosure, pollution control, regulatory reformJEL classification: Q28, D80, L511. Introduction1.1.THE DEMAND FOR DISCLOSURE STRATEGIESThe first phase of pollution control involved applying traditional legal remediessuch as emissions standards. Over time, however, it became clear that these tradi-tional regulatory approaches to pollution control were excessively costly in somecircumstances (Tietenberg 1985) and incapable of achieving the stipulated goalsin others (Tietenberg 1995). In response to these deficiencies in the second phasethe use of market-based approaches, such as tradable permits, emission charges,deposit-refunds and performance bonds, have become much more common (Hahn1989; OECD 1989; Tietenberg 1990; OECD 1994; OECD 1995). In some instancesthey have substituted for traditional remedies, but in most cases they have com-plemented them. In general these approaches have added flexibility and improvedcost-effectiveness to the control of pollution.Even the addition of market-based approaches has not fully solved the prob-lems, however. In the industrialized countries the system remains overburdenedby the sheer number of substances to be controlled. Neither staffs nor budgets areadequate for the task of regulating all of the potentially harmful substances whichare emitted by firms and households.588 TOM TIETENBERGIn many of the developing countries the regulatory infrastructure is insuf-ficiently developed and/or subject to corruption. In either case it is incapableof adequately handling the burden of designing, implementing, monitoring andenforcing an effective pollution control system.Phase three in the evolution of pollution control policy involves investment inthe provision of information. This increasing role for disclosure strategies seems toemanate not only from the increasing perceived need for more regulatory tools(as described above), but also from the falling cost of information collection,aggregation and dissemination. Rising benefits and falling costs imply that how-ever inefficient their use may have been perceived to be in the past, changedcircumstances merit another look.The disclosure strategies considered in this paper involve public and/or pri-vate attempts to increase the availability of information on pollution to workers,consumers, shareholders and the public at large. Provision of greater amounts ofinformation may either complement or replace traditional regulation strategies.Disclosure strategies seek to enlist market forces in the quest for efficient pollutioncontrol. And in so doing they interact in sometimes complex ways with traditionalstandard setting and enforcement strategies. Whether they complement phase oneand two strategies or substitute for them, they involve a rather different role forgovernment – one which seems to offer the possibility of fulfilling the large andgrowing need for control despite limited budgets and staffs. But how real is thispromise?1.2.THE CONCEPTUAL FOUNDATION FOR DISCLOSURE STRATEGIESThe starting point for thinking about information approaches to pollution controlis the Coase Theorem (Coase 1960). In that landmark essay Coase pointed out thatpollution control situations have a certain symmetry. Inefficient pollution imposescosts on victims which exceed the costs of controlling that pollution. In otherwords, the marginal benefits of pollution control exceed the marginal costs. Theexistence of inefficient pollution damage therefore provides a motivation for thevictims to take corrective action, even in the absence of any such incentives by thepolluters.What economists have learned rather recently is that the list of victims canbe very large indeed, much larger than originally thought. The list of potentialvictims includes not only the traditional categories of those harmed directly by thepollution, but also those who may be disturbed by it even if they are not directlyaffected. The fact that this “nonuse” value of pollution control can be quite largehas become a familiar result to those conducting contingent value surveys. Thepressure to control pollution precipitated by better information can therefore bemotivated by victims experiencing both use and nonuse damages.In the past the Coasian insight has been dismissed as a foundation for policy1for several reasons:DISCLOSURE STRATEGIES FOR POLLUTION CONTROL 589• In multiple victim circumstances it ignores the public good nature of infor-mation. When coupled with the very real transaction costs associated withthe collection and dissemination of information, this characteristic tends toundermine the incentive of any individual to derive and to share informationon the nature and extent of pollution damage with the other victims.• The approach appears to force the victim to pay for controlling pollution dam-age which he/she did not cause, an outcome which violates the well-established“polluter pays” principle of pollution control.Both of these sources of concern can be easily overcome. By regulation polluterscan be made responsible for supplying the information. Furthermore the traditionalpoint of view that victims can only act by means of paying bribes to the polluterturns out to ignore the large number of ways that victims can be empowered.1.3.OVERVIEWWhile disclosure strategies (particularly labeling) strategies have become commonin natural resource settings (forest