Environmental protection can be an important government function, in particular because private incentives, as reflected in market prices, often do not capture the full social value of environmental quality, or perhaps more precisely, changes in that quality. In the standard analytic framework, private actors cannot capture the value of environmental improvements, or do not bear the full costs of environmental degradation, unless “transaction” (negotiating) costs are zero, so that resulting environmental quality is lower than the optimal level.
At the same time, the political incentives shaping environmental policies and their implementation are hardly immune from various kinds of distortions, the upshot of which is promulgation of environmental policies that might be too stringent, insufficient, or counterproductive. Given that such policies have the effect of transferring wealth among interest groups, economic sectors, and geographic regions, it is not difficult to predict that the complex congressional bargaining process yielding actual policies might fail systematically to result in “optimal” outcomes, particularly given the shifting nature of majority coalitions.
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