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Benefits and Drawbacks

Benefits of Command-and-Control:
  • They are preferred in cases where the pollutant is so highly toxic that concern over their impact outweighs any economic efficiency concerns
  • Preferred when the Marginal Abatement Cost Curves (MAC) are uniform across all of the firms in the regulated industry and the government can easily know the MAC curve.
  • Preferred when the initial reduction in the amount of pollutant significantly benefits society, while continued reduction doesn't offer as much benefit (The Marginal Benefit of reduction is highly inelastic).
Source: Gruber, Jonathan. Public Finance and Public Policy. 2005. Worth Publishers, NYC.

Drawbacks of Command-and-Control:
  • With technology constantly evolving it is very difficult for the regulatory agency to stay current with the most effective methods.
  • All of these standards (design, performance, input) are just one piece of the puzzle to try to reduce pollution.This isn't to say that the government should integrate all of the standards into one uniform regulation. This would drastically reduce flexibility of choice for the firms-see next point.
  • They limit the firm’s ability to find the most cost-effective way to continue production while reducing pollution. This occurs because the each individual firm might have differing cost structures, so a one-size-fits-all standard mandated from a centralized government agency doesn't afford the firms the flexibility to address their particular externality problems. This leads to economic inefficiency.
  • Often times it is hard or impossible for the government to know the cost structures of each of the polluting firms. This knowledge is required if the regulation is to be efficient.
  • Even if traditional methods lead to an efficient solution, they might draw accusations of unfairness from the polluting firms. In order to be efficient in most markets, the regulators must split the responsibility for reducing pollution unequally among the polluting firms. The ones required to reduce pollution the most might cry foul over being treated differently.
  • Finally, these are just a rules.  Without quick responses and strict consequences non-compliance they are unlikely to succeed.  There will be an incentive for firms to find loopholes if the regulatory agency or the regulation itself is weak.
Sometimes, the conditions in the market can be just right for command-and-control regulation to work by itself. More often the case, they don't work very well: enforcement is weak, compliance low, and the goal of pollution reduction isn't reached. High administrative and information costs can afflict the government, while high compliance costs for the firms create more economic inefficiecncy

As a result of these failures many economists and policy-makers are pushing for other regulatory tools like taxes, subsidies, and tradeable pollution permits. The implementation of these designs has mostly proved to be more efficient over the more direct regulation with command-and-control programs. This is not to say that traditional methods of combating pollution are worthless. Indeed, many of these newer methods incorporate some type of the older style of regulation. At the very least, many of these regulations are still on the books in  America, providing a backstop to the newer methods.

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