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UC Law Journal

Abstract

Federal intervention in environmental standard-setting is often justified as necessary to prevent states from engaging in a welfare-reducing "race-to-the-bottom" spurred by interstate competition for industry. Traditionally, scholars base the "race-to-the-bottom" assumption upon game theoretic models such as the classic Prisoner's Dilemma. Applying a neoclassical economic approach, however, some legal scholars have recently argued that interstate competition is conducive to efficiency and thus that there is no "race-to-the-bottom." In this Article, Professor Engel points out that these arguments have little empirical basis and provides, for the first time in the legal literature, an empirical framework for determining which of the existing theoretical approaches best captures the dynamics of interstate competition. Accordingly, Professor Engel examines two bodies of evidence-the author's own survey of state environmental regulators and studies on how environmental standards affect industry location decisions-to conclude that a "race-to-the-bottom" does, in fact, exist.

This evidence shows that (1) many states relax their environmental standards in order to attract or retain industries and yet, due to the relative lack of importance of environmental standards in determining firm location, they are unlikely to achieve compensating economic benefits from doing so; and (2) the assumptions underlying the neoclassical model used by critics to predict efficient state environmental standard-setting are highly unrealistic. Thus, Professor Engel concludes that there is, in fact, a 'race-to-the-bottom' and that federal environmental law therefore is justified on efficiency grounds. To the extent that efficiency-oriented reforms to our particular framework of federal laws are warranted, however, Professor Engel recommends that environmental standards be developed on a regional, as opposed to a national, basis, by multi-state standard-setting bodies such as the northeast's highly successful Ozone Transport Commission.

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