Public Finance, 2nd Edition

body to regulate the Basin, decided the quality of water it wanted for each of

the rivers, and used a combination of taxes on polluters and waste-treatment

facilities to achieve the new pollution standards. Although the program

might not have been pareto optimal (taxes, for example, were based on

average and not marginal damage levels), the results were dramatic nonethe-

less. The standards were achieved fairly rapidly, and the taxes did induce

Wrms to substitute other resources for water as theory predicts. On average,

West German Wrms on the Ruhr River used far less water after the program

than their counterparts in other countries.

14

Water is apparently highly

substitutable in production, a fact that makes the federal government's

reluctance to tax polluters or use permits all the more frustrating to econo-

mists.

REFERENCES

Baumol, W. J. and Oates, W., The Theory of Environmental Policy, Prentice-Hall, Englewood

CliVs, N. J., 1975.

Baumol, W. J. and Oates, W., The Theory of Environmental Policy, second ed., Cambridge

University Press, New York, 1988.

Brito, D., Sheshinski, E., and Intriligator, M., ``Externalities and Compulsory Vaccinations,''

Journal of Public Economics June, 1991.

Cropper, M. and Oates, W., ``Environmental Economics: A Survey,'' Journal of Economic

Literature, Vol. XXX, part IV, June 1992.

Freeman, III, A., Air and Water Pollution Control: A BeneWt±Cost Assessment, Wiley, New York,

1982.

Goldman, M. I., (Ed.) ``Pollution: The Mess Around Us,'' in Controlling Pollution: The Econom-

ics of a Cleaner America, Prentice-Hall, Englewood CliVs, N. J., 1967.

Kneese, A., ``Water Quality Management by Regional Authorities in the Ruhr Area,'' in M.

Goldman (Ed.), Controlling Pollution: The Economics of a Cleaner America, Prentice-Hall,

Englewood CliVs, N. J., 1967.

Mills, E., ``Economic Incentives in Air-Pollution Control,'' in M. Goldman (Ed.), Controlling

Pollution: The Economics of a Cleaner America, Prentice-Hall, Englewood CliVs, NJ, 1967.

Oates, W., ``The Regulation of Externalities: EYcient Behavior by Sources and Victims,'' Public

Finance, Vol. XXXVIII, No. 3, 1983.

Oates, W., Portney, P., and McGartland, A., ``The Net BeneWts of Incentive-Based Regulation:

A Case Study of Environmental Standard Setting,'' American Economic Review, Vol. 79,

No. 5, December 1989.

Schmalensee, R. et al., ``An Interim Evaluation of Sulfur Dioxide Emissions Trading,'' Journal of

Economic Perspectives, Summer 1998.

Tietenberg, T., Environmental and Natural Resource Economics, Harper-Collins College Publish-

ers, New York, 1996.

Weitzman, M., ``Prices vs. Quantities,'' Review of Economic Studies, Vol. 41, 1974.

14

For instance, steel production on the Ruhr used 2.6 cubic yards or water per ton of steel on

average following the antipollution campaign, whereas the industry average worldwide was 130

cubic yards per ton. See M. I. Goldman, (Ed.), ``Pollution: The Mess Around Us,'' Controlling

Pollution: The Economy of a Cleaner America, Prentice-Hall, Englewood CliVs, NJ, 1967, p. 36.

8. THE U.S. ANTIPOLLUTION POLICES: AN APPLICATION OF EXTERNALITY THEORY 261