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Duke Economics Working Paper #97-01

Does Nature Limit Environmental Federalism?

V. Kerry Smith, Kurt A. Schwabe, and Carol Mansfield

Abstract

This research considers whether the principles developed to analyze the optimal jurisdiction for producing public goods can be applied in cases where regulations of private activities provide the primary means to deliver different amounts of public and quasi-public goods. The analysis evaluates how devolution affects the development of benefit cost analyses for regulations and the role of economic versus environmental factors in defining the extent of the regulatory market. Using a study of nutrient control for the Neuse River in North Carolina, the analysis develops area specific measures of the benefits and costs of regulations and illustrates how changes in the composition of the areas allowed to "count" for policy design can affect decisions about the levels of control judged to meet the net benefit test.

Key Words: Environmental Federalism, benefit-cost analysis, nutrient control

JEL: H11, H23, Q28

Published in Environmental and Public Economics: Essays in Honor of Wallace E. Oates. Arvind Panagariya, Paul R. Portney and Robert M. Schwab, eds. Cheltenham, U.K. and Northampton, Mass.: Elgar, 1999, pp. 126-148.