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2000 U. Ill. L. Rev. 275 (2000)
Explaining Market Mechanisms

handle is hein.journals/unilllr2000 and id is 285 raw text is: EXPLAINING MARKET MECHANISMS
Thomas W. Merrill*
In recent years, environmental regulation has seen a debate be-
tween supporters of traditional command-and-control regulation- -a
system of uniform pollution control standards- and proponents of a
system of fees or permits for individual polluters known as market
mechanisms. In this article, Professor Merrill considers two theories,
wealth-maximization theory and distributional theory, that have been
used to explain the emergence of market mechanisms in American
environmental policy. He notes that (1) relatively few American envi-
ronmental-enforcement programs have adopted market mechanisms;
(2) those that exist overwhelmingly use grandfathered transferable
permits instead of pollution taxes or auctioned permits; and (3) they
are always based on pollution control standards that have been estab-
lished before the market mechanisms are put in place. Professor
Merrill finds that the distributional theory best explains why grand-
fathered permits are used most often and why, more generally, adop-
tion of market mechanisms is not more widespread. Finally, noting
that no inherent conflict exists between the wealth maximization and
distributional theories, Professor Merrill concludes that a framework
building upon both theories may lead to a better understanding of the
debate between command and control and market mechanisms.
I. INTRODUCTION
Of the various innovations in environmental policy in the last
twenty-five years, one of the most controversial has been the effort to re-
place traditional command-and-control regulation with market mecha-
nisms.
Command-and-control regulation refers to a system of pollution
control based on uniform standards of performance for sources of pollu-
tion. Most typically, regulators adopt standards that specify for a par-
ticular category of sources how much of a given pollutant a source is
permitted to emit over a given unit of time. All sources that fall within
the category are then required to achieve compliance with this standard,
* John Paul Stevens Professor of Law, Northwestern University.
The author is grateful for suggestions provided by David A. Dana, William H. Rodgers, Jr., and
Henry E. Smith.

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