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2000 U. Ill. L. Rev. 275 (2000)
Explaining Market Mechanisms

handle is hein.journals/unilllr2000 and id is 285 raw text is: EXPLAINING MARKET MECHANISMS Thomas W. Merrill* In recent years, environmental regulation has seen a debate be- tween supporters of traditional command-and-control regulation- -a system of uniform pollution control standards- and proponents of a system of fees or permits for individual polluters known as market mechanisms. In this article, Professor Merrill considers two theories, wealth-maximization theory and distributional theory, that have been used to explain the emergence of market mechanisms in American environmental policy. He notes that (1) relatively few American envi- ronmental-enforcement programs have adopted market mechanisms; (2) those that exist overwhelmingly use grandfathered transferable permits instead of pollution taxes or auctioned permits; and (3) they are always based on pollution control standards that have been estab- lished before the market mechanisms are put in place. Professor Merrill finds that the distributional theory best explains why grand- fathered permits are used most often and why, more generally, adop- tion of market mechanisms is not more widespread. Finally, noting that no inherent conflict exists between the wealth maximization and distributional theories, Professor Merrill concludes that a framework building upon both theories may lead to a better understanding of the debate between command and control and market mechanisms. I. INTRODUCTION Of the various innovations in environmental policy in the last twenty-five years, one of the most controversial has been the effort to re- place traditional command-and-control regulation with market mecha- nisms. Command-and-control regulation refers to a system of pollution control based on uniform standards of performance for sources of pollu- tion. Most typically, regulators adopt standards that specify for a par- ticular category of sources how much of a given pollutant a source is permitted to emit over a given unit of time. All sources that fall within the category are then required to achieve compliance with this standard, * John Paul Stevens Professor of Law, Northwestern University. The author is grateful for suggestions provided by David A. Dana, William H. Rodgers, Jr., and Henry E. Smith.