Public Finance, 2nd Edition

Municipal Waste-Treatment Plants and Superfunds

Our model does not suggest that the government should be subsidizing and

building large municipal waste-treatment plants. On the contrary, it implies

that the aVected Wrms and individuals should undertake defensive measures

on their own. Large waste-treatment facilities subsidized by the government

do make sense, however, if waste treatment exhibits signiWcant economies of

scale. This is true even if pollution is taxed at its source. Economies of scale in

waste treatment is an entirely separate issue from the externality point and

will be analyzed in Chapter 9. The crux of the matter is that each agent

aVected by a pollutant should not be undertaking defensive measures at high

marginal costs when a single large facility can be operated at much

lower marginal costs to provide the protection. In fact, waste treatment

does exhibit substantial scale economies. Nonetheless, the federal grant

program that leaves the option of building up to each individual municipality

does not necessarily provide the proper amount of waste treatment. Nor

should polluters be untaxed in the Wrst place. The equal-marginal-cost rule

for reducing pollution still applies in the presence of scale economies.

The same points apply to the Superfund program. Once hazardous

wastes accumulate at a site, a single removal facility is probably a much less

expensive option than having the aVected individuals and Wrms trying to

protect themselves forever from the hazard. Also, hazardous wastes should

be controlled at their sources.

CONCLUDING COMMENTS

Economists are accused of being a contentious lot, unable to agree on much

of anything. One thing they do agree on, though, is that the federal govern-

ment's antipollution eVorts are much more costly and less eVective than they

need be. The assumptions of Wrst-best analysis may be highly restrictive, but

the theoretical evidence against the CAC bias of the federal antipollution

programs is fairly overwhelming.

In favoring a tax- or price-incentive-based approach to reducing pollu-

tion, economists have long held up as an example one of the most eVective

antipollution campaigns ever, the program to clean up the Ruhr River Basin

in the 1960s in what was then West Germany.

13

The Ruhr River Basin cons-

ists of Wve rivers on which a signiWcant portion of West Germany's heavy

industry was located in the 1960s. All Wve rivers were choked with industrial

pollutants at the time. West Germany established a separate jurisdictional

13

For an excellent overview and analysis of the water quality management program on the

Ruhr, see A. Y. Kneese, ``Water Quality Management by Regional Authorities in the Ruhr

Area,'' in M. Goldman (Ed.), Controlling Pollution, Prentice-Hall, Englewood CliVs, NJ, 1967.

260 CONCLUDING COMMENTS