H Spencer Banzhaf wrote: >First, there is an even more obvious reason why >Sidgwick would never have thought about a >trading scheme for pollution. Nobody at the >time could have imagined the tasks of monitoring >and enforcement! To have trade, you have to >have the traded commodity be delivered. In the >case of building height, it would have been >pretty easy to look up and verify whether a >building exceeded the height restrictions it had >traded away. But how is one to know whether a >factory is exceeding its pollution >restrictions? Much easier just to regulate its >smokestack height etc. In fact, if you talk to >folks in the US EPA's enforcement division, they >will tell you that it took years of discussion >and work before agency people and the >environmentalists were convinced that cap-and-trade would work. There may still be some convincing to do on that score. "Cap-and-trade" takes an externality and turns it into a property right, one that can be sold and traded. The problem is that externalities--and the property rights that go with them--can be infinitely multiplied; one gets a premium (a new right) with each new misery created. E. K. Hunt satirizes this as the "invisible foot." As Hunt puts it, "If we assume the maximizing economic man of bourgeois economics, and if we assume the government establishes property rights and markets for these rights whenever an external diseconomy is discovered [the preferred "solution" of the conservative and increasingly dominant trend within the field of public finance], then each man will soon discover that through contrivance he can impose external diseconornies on other men, knowing that the bargaining within the new market that will be established will surely make him better off. The more significant the social cost imposed upon his neighbor, the greater will be his reward in the bargaining process. It follows from the orthodox assumption of maximizing man that each man will create a maximum of social costs which he can impose on others. D'Arge and I have labeled this process "the invisible foot" of the laissez faire ... market place. The "invisible foot" ensures us that in a free-market ... economy each person pursuing only his own good will automatically, and most efficiently, do his part in maximizing the general public misery. " He then goes on to slightly rewrite a well-known passage to describe this: "Every individual necessarily labors to render the annual external costs of the society as great as he can. He generally, indeed, neither intends to promote the public misery nor knows how much he is promoting it. He intends only his own gain, and he is in this, as in many other cases, led by an invisible foot to promote an end which was no part of his intention. Nor is it any better for society that it was no part of it. By pursuing his own interest he frequently promotes social misery more effectually than when he really intends to promote it. " John C. M?daille