ABSTRACT
In a recent issue of this Review, James Buchanan and Gordon Tullock (B-T) sought to present a positive theory in explanation of the frequency with which direct controls of an externality are imposed in lieu of punitive taxation. They argue that this frequency is observed despite the preference of most economists for price controls, because those economic actors whose production or consumption is to be regulated not only prefer direct quantity control, but also possess the means with which to press their will upon the political decision maker. It has been the point of recent work in the theory of regulation under uncertainty that the economists’ general preference is not entirely well-founded (see for example Marc Roberts and Michael Spence, Martin Weitzman, and the author). There do exist many quite plausible situations in which both economists and the Buchanan-Tullock regulatees should prefer quotas. It is not, however, the purpose of this comment to characterize these situations; I will, instead, work within the certainty model of B-T to demonstrate that their arguments depend crucially upon the structures of their quantity control alternatives. For example, I will show that in the production section of their paper, the quantity scheme is not economically equivalent to the alternative taxation system, and that it distributes the gains of this difference to the regulatees. When the equivalent quantity control is properly specified, both the economists’ general preference for taxation and the regulatees’ general preference for quotas will disappear. The difficulty, therefore, does not lie in the specification of the tax structures, as B-T suggest, p. 147, but rather in the specification of the quota schemes.
