ABSTRACT
The case in favor of decentralized decisionmaking is simple, yet powerful and persuasive. For the moment, let’s set aside the question of who should set policy and look at the principles we would like to see embedded in policymaking decisions. “Optimal” environmental policy-from an economic standpoint, at least-requires us to continue to reduce pollution in all parts of the country up to the point that the cost of further reducing pollution (what is known as marginal abatement cost) equals the benefits from that reduction (that is, marginal social damage). Focusing only on the economics of the issue, if it costs society $100 to reduce emissions by one additional ton but the benefits from doing so were valued at $200, we would be wise to cut back on pollution further; if, on the other hand, benefits were valued at only $50, we have set environmental standards too high. If we continue with this line of argument, the logic behind the economic principle that the optimal standard is such that marginal abatement cost equals marginal social damage becomes clear.
