Skip to main content

Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
    1. The meaning of externalities
    2. Types of externalities
    3. How do externalities affect allocative efficiency?
    4. Negative externalities of production
    5. Negative externalities of consumption
    6. The economic theory of traffic congestion
    7. Demerit goods
    8. Government responses - demerit goods
    9. Possible government responses to externalities
    10. Direct government provision
    11. Extension of property rights
    12. Taxes and subsidies
    13. Tradeable pollution rights
    14. Regulation, legislation and direct controls
    15. Positive externalities of production
    16. Positive externalities of consumption
    17. Merit goods
    18. Why might merit goods be underprovided by the market?
    19. Government responses - merit goods
    20. Public goods
    21. Common access resources & sustainability
    22. The tragedy of the Commons
    23. Common access resources in practice
    24. Sustainability
    25. Threats to Sustainability
    26. The threat to sustainability from the use of fossil fuels
    27. The threat to sustainability from poverty
    28. Government responses to threats to sustainability
    29. Cap and Trade Schemes
    30. Promoting Clean Technologies
    31. The 'dirty side' of cleaner technologies
    32. International responses to threats to sustainability
    33. Asymmetric information
    34. Abuse of monopoly power
    35. Inequality
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

Regulation, legislation and direct controls - Discussion

sign_noIn practice the use of direct controls represents the most common approach to pollution. Such controls can be applied both to consumers and producers and can take a number of forms; for example, restrictions can be imposed on smoke emissions from private homes and firms; restrictions may be placed on all forms of building in designated green-belt areas; minimum environmental standards may be stipulated for air and water quality; laws may be passed to prevent drinking and driving and the sale of alcohol and tobacco to people under a certain age.

Apart from restriction, direct controls can also be used more severely: activities generating negative externalities could be banned completely; for instance, the dumping of waste into rivers or the sea; or an activity which conferred net positive externalities on society could be made compulsory; for example, all children under the age of 16 in the country could be made by law to receive some form of education, whether it be in a state school, a private school or at home.

The main advantage of regulation is that it is the most direct way of tackling the problem of externalities; for example, market-based solutions such as taxes and tradeable emission permits provide incentives to firms to reduce their pollution levels but do not compel them to do so; as such problems as global warming and the depletion of the ozone layer are thought by many to threaten the very survival of our planet, it is argued that we cannot afford to trust our futures with policies which allow for the possibility of non-compliance. Providing legal restrictions are backed by inspections that are sufficiently regular and rigorous, they should be effective.

Against this, it is argued that in reality the policing of regulations can present great difficulties as the less environmentally conscious firms may attempt to circumvent the controls e.g. through the generation of pollution during the night. Thus an extremely large number of inspectors might have to be employed to ensure compliance.

It is also claimed that regulation can be a rather blunt, indiscriminate instrument of control; for example the setting of maximum emission limits does not take into account the fact that the cost of reducing pollution would vary considerably as between different firms, some facing high costs with others facing low costs. Thus a uniform limit applied to all firms would be an inefficient way of reducing pollution, implying as it would a high resource cost. Also it may be the case that once emission targets have been achieved, there would be no further incentive to continue to reduce pollution, as would be the case with a pollution tax.

Regulation may also give rise to the problem of regulatory capture - those being regulated may be successful in manipulating the regulatory body to act in accordance with the private interests of the firms concerned, rather than in the interests of society as a whole. In the USA there are very powerful lobbyists that operate on behalf of industries - an example is the gun lobby that often prevents legislation limiting the right to own a gun and which operates on behalf of gun manufacturers.