EDOARDOCROCI IEFE - Università Bocconi, Milano, Italy Voluntary
approaches in environmental policy represent a "third wave" of
regulation in the environmental field. "Command and control" was the
first wave. Its core is based on uniform emission standards, the respect
of which needs to be enforced through extensive monitoring and severe
sanctions. The expected cost of sanction for non-compliance, calculated
as its amount multiplied for the probability to be caught, must be
superior to the benefits of non-compliance, in order to let the sanction
be effective. As the benefits of non-compliance can vary among firms,
sanctions need to be very high in order to be effective. In fact
sanctions are ordinary correlated to environmental damage and not to the
benefits of non-compliance. But very high sanctions can be difficult to
enforce as they appear unfair and can lead to dramatic consequences on
firms and workers, up to shut-downs of plants. Ambient standards reduce
these problems, but oblige the regulator to know a huge amount of
information, regarding the specific contribution of each polluter to the
polluted body. Information is difficult to obtain because of asymmetric
information and costly to produce because it requires large and skilled
regulating and enforcing organizations. Nevertheless complex regulation
is the base of any environmental policy framework, as it allows the
policy maker to fully exercise its power of composition of various
interests in a relatively transparent way. Economic instruments were the
second wave.