Do Profits Promote Pollution?

Summary

Environmentalists, politicians, and scholars express concern about a "race to the bottom" in environmental policy. They fear that competition between countries (or states or cities) for firms and investment may lead to excessively lax environmental standards. Yet economic theory indicates that a race to the bottom in environmental policy is highly unlikely, and there is little evidence that such races have, in fact, occurred.

In "Do Profits Promote Pollution? The Myth of the Environmental Race to the Bottom," PERC Julian Simon Fellows Rob Fleck and Andy Hanssen argue that the greatest threat to the environment arises not from apocryphal "races to the bottom," but rather from governments that fail to act in the interests of their citizens. Representative governments, even if they are competing for firms, will not engage in an environmental race to the bottom. By contrast, unrepresentative governments, even if they are not competing for firms, often implement overly lax environmental standards. Understanding the difference is crucial to good policy making.