The Economic Dynamics of Environmental Law.

Author:Stephenson, Kurt
Position:Book Review

The Economic Dynamics of Environmental Law, by David M. Driesen. Cambridge: MIT Press. 2003. Cloth, ISBN 0262042118, $62.00; paper, ISBN 0262541394, $24.95. 268 pages.

Institutionalists have a longstanding interest in technology and technological change. Private incentives and markets play a key role in sparking creativity and innovation across an array of private sector products, ranging from computer chips and software programs to basic food staples like rice. Yet, only limited private sector resources are devoted to improving environmental quality. David Driesen explores potential remedies to this lack of private sector involvement in his new book, The Economic Dynamics of Environmental Law.

The book is divided into two basic parts. The first half is a critique of static efficiency thinking in mainstream economics, particularly as applied in benefit-cost analysis, free trade, and the use of economic incentive mechanisms in environmental policy. In the second half, Driesen explains the concept of environmental innovation (what Driesen calls economic dynamics), and explores a variety of reforms in environmental law that could spark private interest and investment in technological change for environmental quality.

Driesen fingers a static efficiency mindset for failing to focus attention on how institutions can be designed to better stimulate the creation of new knowledge and technologies. At the beginning of the book he claims that environmental policy needs to be more cognizant of the insights of institutional economics. He specifically identifies the importance of concepts such as bounded rationality and adaptive institutional systems to improving policy. He stresses that neoclassical models of economic man fail to illuminate the actual behavior of people within existing organizations and institutions. Unfortunately, Driesen does not develop these concepts in a formal way and does not venture beyond a few references to Herbert Simon and Douglass North. The lack of acknowledgement or understanding of heterodox economic thinking, particularly the institutionalist and Austrian literature, is an important limitation of the book.

Driesen's extensive critique of emission trading programs is illustrative. Driesen argues that trading programs offer few advantages over conventional performance standards as a way to simulate innovation. His criticisms are directed primarily at mainstream descriptions of trading programs rather than the performance of trading...

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