Earlier quoted context omitted.
"Do we really need regulations?" Yes. You need to read on industrial history if this is not obvious to you. The nature of business and industry is such that they prefer local short term optimizations. In this context an environmental hazard is not considered a concern for various reasons, including, it incurs no immediate negative impact on the factory, the impact of one factory would be insignificant because everyon…
> You need to read on industrial history if this is not obvious to you. I'm asking questions to learn something from the discussion. Currently, my opinion is that regulations are necessary, but perhaps they aren't, and I would like to hear why. > Think of it as an algorithmic problem - local optimization seldom leads to a global optimum. Hence, sometimes global tweaks can benefit an entire system. To me, this sounds…
Trying to recall what they taught us in business school. Regulations of the kind I think you mean (i.e. ban pollution) are one way to combat externalities, but there are others, in theory.
Econ. researchers stipulate property rights as one way:
If I own the river, and the right to fish in the future, my incentives will shift toward not polluting today. If the river is public and I have no guarantee of future yields, then the game theoretically smart thing to do is pollute as much as I can get away with.
As always, the devil is in the implementation details.
Pre-emtping useless word thinking: I am aware that "property rights" can fall under regulation, depending on definitions. If that bothers you, feel free to s/regulation/bans in the paragraphs preceding this.