Safety Standard

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Can one put a price tag on safety? Efficiency advocates, as we saw in the previous section, set price at the point where the market is at its Pareto efficiency. Safety advocates, however, believe that people have a right to protect themselves against unsolicited harm to their immediate environment and see safety as an essential human right that must be assured at an acceptable level no matter the cost.

Proponents of safety (or fairness) standards disagree with the Coase hypothesis and argue that polluters are the ones who must pay for the cost of cleaning the environment -- the public should not be victimized at the expense of profiteering by the polluting firms. In addition to being fair to the victim, the polluter-pays principle is superior on two main economic grounds. First, it removes the incentive for polluters to pollute (free-ride), as they, rather than the victim, would have to pay for the cleanup. Second, if polluters do not pay for the pollution, their production costs drop. This encourages even more polluters to enter the market, produce more goods, and create even more pollution. Furthermore, safety advocates refute the claims by efficiency advocates that suing the polluters can remedy the problem of environmental pollution by pointing out that victims often do not have the resources that large corporations have. Litigation is often quite costly and can take many years. Therefore it is very likely that victims tolerate the pollution damage, giving polluters a free hand to pollute with little fear of retribution. Another concern raised with this option is that there are always those who try to free ride on the outcome of the lawsuits of a few without exposing themselves to excessive costs associated with the lawsuits. For example, a noisy tenant blasting his stereo in the middle of the night might inconvenience more than a few neighbors. Although one or more victims may be inclined to sue and evict this neighbor, others may refuse to contribute to the effort and hope others carry the burden.

Proponents of efficiency standards, for their part, point to a number of drawbacks in safety standards. The first criticism is that safety standards are by definition inefficient. Voters often tend to walk on the side of caution and overestimate the risks; thus the cleanup costs will be excessive. Furthermore, with budgetary constraints, the public will be best served if the money is spent on environmental projects that save the largest number of lives. Because we have limited financial resources for environmental protection, accepting a small increase in a particular risk may release money to carry out other safety measures. For example, by allowing a higher risk of cancer from pesticide use and diverting funds to reduce cancer from tobacco smoking, investing in accident prevention measures, and educating the public about drug abuse, gun safety, and gang violence might in fact saves more lives overall. Ultimately, how strict the safety standards should be requires a cost-benefit analysis.

Question: Who should pay for hauling garbage and constructing new landfills, the government or private homeowners?

Answer: When the government pays for the cost, individual households have little incentive to reduce waste, and landfills fill sooner. At any rate, in the long run, the cost will be distributed through all households by requiring them to pay higher taxes.


(1) Toossi Reza, "Energy and the Environment:Sources, technologies, and impacts", Verve Publishers, 2005

Further Reading

Chapman, D., Environmental Economics: Theory, Application, and Policy,” Addison-Wiley, 2000.

Goodstein, E. S., Economics and the Environment, 4th Ed., John Wiley & Sons, 2002.

Siebert, H., Economics of the Environment: Theory and Policy, Springer Verlog, 2004.

Dauvergne, P., Handbook of Global Environmental Politics, Edward Elgar Publishing, 2005.

Journal of Environmental Economics and Management (JEEM), the journal of Association of Environmental and Resource Economics.

Ecological Economics – Direct Science Elsevier Publishing Company, the journal of the International Society for Ecological Economics (ISEE).

Environmental Economics and Policy Studies – Published by Springer-Verlog, New York is the official journal of the Society for Environmental Economics and Policy Studies.

External Links

US Agency for International Development (

National Center for Environmental Economics (

United Nations Development Program (

United Nations Environment Programme (

Intergovernmental Panel on Climate Change (

World Resource Institute (

Union of Concerned Scientists (