Markets are not magic

Unfortunately, environmental reforms based on market emulation to date have not involved a serious effort to figure out how to secure the innovations that would enable us to cope with environmental problems that often grow worse over time. This omission seems strange, since many people admire the free market's ability to encourage innovation. Instead, market emulation in this area takes the "economic efficiency" concept that economists use to model free markets - that production costs should match the value of benefits to consumers - and makes it into a guide for environmental policy. To foster innovation effectively we need an understanding of the economic dynamics of environmental law. This new discipline would build on the law and economics movement's observation that economic incentives are important, but it would employ this insight for the new purpose of improving environmental law's capacity to encourage innovation to allow us to cope with change. It would recognize the environmentally destructive economic dynamics that already exist in society and design policies that counter, rather than mimic or even exacerbate, destructive dynamics. It contributes to a post-Chicago law and economics that moves beyond merely noticing what incentives a law provides to ask how incentives actually influence people and institutions. It employs the insights of public choice theory, which predicts that special interests will have great influence over policy, to craft ideas about how to overcome excessive industry influence on environmental policy. It recognizes the importance of allowing ordinary citizens to shape the goals of environmental policy, while offering a large role for private initiative and environmental entrepreneurs, especially those who offer not just refinement, but innovation.