Bruce Yandle

A Theory of Entangled Political Economy, with Application to TARP and NRA

The recent financial crisis has provoked a raft of contending claims as to whether the cause of the crisis is better attributed to market failure or political failure. Such claims are predicated on a presumption that markets and polities are meaningfully separate entities. To the contrary, we argue that contemporary arrangements create an entangled political economy that renders theorizing based on separation often misleading. Within this alternative framework of entangled political economy, we illuminate both the recent Troubled Assets Relief Program (TARP) and the New Deal’s National Recovery Administration (NRA).

The Political Economy of Green Taxation in OECD Countries

This paper addresses the role of politics in environmental policymaking in OECD countries. The public interest theory of regulation assumes that politicians pursue the public good and employ economically efficient instruments such as Pigouvian taxes to discourage polluting activities. Alternative theories of regulation, however, explain more realistically the environmental policymaking process. The theory developed in this paper argues that the goals of raising revenue and industry competitiveness overwhelm the goal of improving environmental quality when politicians set green taxes. This theory is empirically tested with a political economy model using data on OECD countries. The results suggest that policymakers do not set taxes with a specific concern for the environment, but to generate revenues. The model also demonstrates the concavity of the revenue function with respect to emissions; taxes are raised up to an optimal point beyond which raising them would discourage emissions, and thus revenues. Harmful behavior is not discouraged through the imposition of the taxes, since less healthy populations are taxed less. Emissions generated by industries that are exempted from taxation are offset by the industries that are taxed. When polluting products constitute a high share of the exported products, revenues from environmentally related taxes drop. These results help explaining the lack of environmental orientation of green taxes in the OECD countries.

Labor markets and sunday closing laws

This paper puts forth arguments regarding the occurrence of state Sunday closing laws and reports statistical estimates that predict the occurrence of those laws in 1970 and 1984. Along with other socio-economic variables, two labor market activities are found to be significant determinants of Blue laws. Membership in labor unions is found to have a positive declining influence on the laws; female labor market participation is found to have a negative but growing influence.

Public Choice at the Intersection of Environmental Law and Economics

Management of environmental assets begins with a commons and ends with various legal institutions that assign property rights and control. Each step in the evolution of these legal institutions involves collective decision making. Public Choice analysis helps to explain the decision making process and institutional characteristics that emerge. A survey of Public Choice literature that addresses environmental issues illustrates how Public Choice sheds light on outcomes for the U.S. experience. In the absence of Public Choice theory, law and economics scholars would be hard pressed to explain why costly forms of environmental regulation seem preferred to apparently more efficient institutions and why the body politic seemingly accepts a high-cost, low-output outcome.

The end of the externality revolution

The process of arriving at a useful concept of analysis is not only slow and painful, but may also go astray and attain nothing useful. Someone begins with one example or observation, followed by a theory which is intuitively plausible. A theoretical term associated with a vague concept is coined. Examples of a seemingly different type emerge, which call for another theory. The process goes on. As examples and theories continue to accumulate, the different categories under the same heading of analysis serve only to confuse and each associated theory becomes ad hoc. Such has been the fate of the concept of ‘externality.’ (Cheung 1970)

Exploring the Production of Social Order

In this article, we consider the production of order. Social order is a product of community action, which is to say it is deliberately produced; its production can be explored with the tools of price theory. There are two categories of inputs—informal and formal, where the first involves customs, traditions and social norms and the latter involves regulation, statutes, and police. We argue that people seek to form homogeneous communities where order is produced at low cost, using informal means. Communities that can produce order at relatively low cost will use less of the formal input, unless required to do so by legislation. Formal efforts to force the production of order by a larger heterogeneous polity paradoxically can erode the ability of homogeneous communities to produce order by informal means. In our statistical examination of the relationship between homogeneity and order using U.S. data, we find support for these notions.

Organic constitutions and common law

Constitutions may be viewed as purely political instruments developed by wise and strong leaders and imposed on a loosely organized society. The alternate view taken in this paper sees a nations constitution as being rooted in the norms of individuals that form communities and states. Constitutions grow from within; they are not imposed from outside. The history of constitutional development in England is part and parcel of the history of Common Law, which growing informally from small groups finally encompassed the nation-state to form a basis for constitutional government. The integrity of the law was rooted in the integrity of the individuals that formed the constitutional community.

Common Law Environmentalism

The necessity to control environmental externalities is almost invariably given as justification for command-and-control regulation and other forms of state intervention in related markets. When even mentioned, common law remedies that protected environmental rights for centuries are quickly dismissed as either being unworkable or ineffective. A review of the common law experience indicates that the rule of law can be effective in protecting environmental rights. Indeed, it is quite possible that common law was too effective, which led to special interest demand for statute law. The rule of politics may be more attractive to rent seekers than the rule of law and markets.

Constitutional choice for the control of water pollution

Before passage of the Clean Water Act, water pollution was controlled by the common law of nuisance and the law of water rights. Had the common law not been superseded, it might have provided more ecologically sound pollution control than has occurred under the command-and-control statutory regime. The Clean Water Act imposes mechanical definitions and is subject to political interference. In contrast, the principle of the common law lies in its evolutionary and competitive nature, which is consistent with the market process.

Economic agents and the level of pollution control

SummaryAt the outset several propositions were stated regarding the logic of support by economic agents for strict setting of environmental standards and levels of enforcement. By focusing on potential rents generated by output restrictions, particular groups of gainers and losers were identified. The statistical test of the propositions lends support to the notion that rent-seeking behavior matters.Since the tests were based on a period when federal activity in the environmental arena was rather limited, it is assumed that state and local actions would have been more effectively influenced by those immediately associated with the result of efforts to regulate environmental use.The fact that environmental control eventually migrated from the state-local level to the federal level suggests that some potential gainers or losers were not satisfied with the mid-1960 result. Firms could relocate and escape the control net. Unions could lose members. Land values would fall concomitantly. By imposing uniform standards and levels of enforcement across space, most of the principal rent-seeking groups could gain. That assertion, a proposition itself, however, awaits the arrival of empirical evidence to support or reject it.