Standard Setting and the Theory of Institutional Choice: The Case of Pollution Control

Abstract

In Paretian welfare economics, societal choice situations are modelled in a manner analogous to the model of rational choice in micro-economics. Such an approach is inadequate to the analysis of problems of public regulation, among them pollution control. This paper presents an alternative analysis in which actors pursuing goals within a network of constraints attempt to modify these constraints by a number of means. Such a model may be described, following Buchanan, as one of a ‘closed behavioural system’, or, as suggested here, as a theory of institutional choice. An institutional choice approach to policies for maintaining environmental standards is elaborated in the light of the several control options – ambient standards, effluent standards and technical standards. It is shown that with given resources and technical possibilities, higher levels for one standard inevitably imply lower levels for other standards. The intrinsic superiority of effluent charges is discussed, as are the organizational and political interests which ensure the prevalence of governmental regulation as the preferred tool of environmental control.