What happened to the cleanliness of your clothes after the U.S. Department of Energy issued new washing machine requirements? The requirements — which require

What happened to the cleanliness of your clothes after the U.S. Department of Energy issued new washing machine requirements? The requirements — which require washers to use 20% less energy — mean that washers actually clean clothes less than they used to. Is “command and control" an efficient way to achieve the desired outcome (which is less pollution)? Rather than a standard requirement, such as the Department of Energy issued, a tax on electricity would provide users with greater flexibility in their washing—and would prompt people to purchase machines that use energy more efficiently and keep their clothes clean.

Are there times when a command and control solution to a problem makes the most sense? We look at the eradication of smallpox as one example. 

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We've already looked at one solution to the externality problem, Pigouvian taxes and subsidies. You might call that the economist’s solution. There's another solution, however, which is very common and quite popular to the man in the street, and that's command and control.


That's what we're going to look at now. Command and control is pretty much what it sounds like. The government says, "You cannot do this or you must do this." For example, the Department of Energy in an effort to reduce the consumption of electricity, recently said that it is illegal to sell washing machines in the United States if they consume more than a certain amount of electricity. The only washing machines that it was legal to sell had to consume less than this amount of electricity.


So, what were the results of this command and control program? Well, here's Consumer Reports: "Not so long ago you could count on most washers to get your clothes very clean. Not anymore. What happened? As of January 2007, the US Department of Energy has required washers to use 21% less energy...but our tests have found that traditional top-loaders, those with the familiar center-post agitators, are having a tough time wringing out those savings without sacrificing cleaning ability..."


So, the government said you have to use 21% less energy, but if things were that easy everyone would do them. There are trade-offs everywhere, and by requiring the washing machines to use less energy, the trade-off is they didn't clean so well. Eventually, the technology has gotten better and will get better, and perhaps, this will be possible. But one of the problems with a command and control approach, is that the government is not always aware of the trade-offs. They're not always able to choose the least cost way of achieving a goal.


Let's take a closer look at this problem. Command and control is rarely an efficient way of achieving a goal. Why not? Well, there many ways to achieve most goals. For example, let's look at some of the ways in which we could use less electricity. We could turn down our thermostat a little bit. We could shut the lights off when we leave a room. We could turn off our computers at night when we're not using them. We could use more solar power. Firms, which use a lot of electricity have many, many different ways to use less by adjusting their production processes.


Now, if we want to cut back electricity consumption by, say, 10%, we want to cut back on the 10% of electricity uses, which are least valuable. We want to reduce electricity use in the way, which is least costly. The problem is, out of all of the millions, and perhaps, billions of ways of reducing electricity, is government going to choose to command and control us to reduce electricity in the least cost way? Probably not. Government simply does not have enough information to order the least costly method of reducing electricity consumption.


Now, let's compare our command and control with an alternative method, a tax on electricity. A tax on electricity would allow the users, would give them flexibility to find the lowest cost ways to reduce their use of electricity. If a tax of, let's say, a few percentage points would reduce electricity consumption by exactly the same amount as the command and control approach. The difference is, is that each one of us would look at the higher price of electricity and would choose, based upon our different circumstances, and knowledge, and flexibility, which ways we could reduce electricity in the least cost.


Some of us would turn down lights, some of us would turn down thermostats, some firms would change the production processes a lot, others would change their production processes just a little bit. Each one of us would access our own information, and in this way with much, much, much greater flexibility, we could reduce electricity consumption by exactly the same amount as the command and control approach. But we would do so at much lower cost because each user of electricity would have the flexibility to choose the least cost ways of doing it.


Think about it, how many people would choose to reduce electricity by paying a lot more for a washing machine that doesn't clean very well? Probably not too many. That illustrates that when government chose to reduce electricity consumption by requiring washers to be "more efficient" that actually wasn't the least-cost way of reducing electricity. That was actually a very high-cost way of reducing electricity, because it meant that we had dirty clothes and we really didn't want that.


Finally, let's remember that the goal is not actually to use less electricity. The goal is to reduce pollution. That's why a Pigouvian tax is really one of the most efficient ways of reducing or controlling an externality, because a Pigouvian tax is targeted on the problem – the pollution. So, the closer we can get the tax to the good, which is actually causing the problem, which is not electricity, but instead which is pollution, the more efficient, the lower cost way we will have of solving the externality problem of reducing pollution at least cost.


Is command and control ever a good solution? Yes, it can be precisely when flexibility is not a virtue. So, if the best approach to the problem is well known, we don't need experimentation, and innovation, and new ideas - we know the best approach. And if success requires very strong compliance, that is when flexibility is not a good thing, then command and control may be the best approach.


So, for example, let's consider the eradication of smallpox. Now, smallpox is a terrible disease. It has killed more people in the history of the world, billions of people than, perhaps, anything else except, perhaps, old age. To get rid of smallpox, we had to isolate every single time there was a new case of smallpox we had to isolate the people with the smallpox and vaccinate everyone in the surrounding community. And the World Health Organization and other organizations did this time and time again.


Wherever a case, anywhere in the world, of smallpox appeared, we isolated and vaccinated. And over time smallpox had fewer and fewer places to hide. Until by 1979, there were no places to hide left. Smallpox had been eradicated from the face of the planet. That was a tremendous boon to humanity, but really the only way it could have been done was command and control. If we'd subsidized vaccinations, that would not have been enough, because that inevitably would have led to small pockets of people who were not immunized and they would've continued to be carriers to spread it to other people in the world. So, command and control got us very strong compliance and it eradicated smallpox from the world - and that was a tremendous thing.


Very briefly, let's just say where we've been and where we're going. We've been looking at solutions to externality problems. So, far we've looked at two: Pigouvian taxes and Pigouvian subsidies, Pigouvian taxes for external cost and Pigouvian subsidies when there are external benefits, and command, and control. The next thing we want to do is to look at the Coase theorem and private solutions to externality problems. It turns out that we've been a little bit too pessimistic. There can be some market or private solutions to externality problems in certain circumstances, and that's covered by the Coase theorem.


The last thing we're going to do is look at tradable allowances. These have been extremely important in practice in reducing acid rain, and may become more important in the future in dealing with global climate change. Tradable allowances, as we'll see, are a sort of combination of command and control, and ideas from Ronald Coase - and it actually turns out to be quite similar to Pigouvian taxes and subsidies in the end as well. So, that's where we're going, Coase theorem and private solutions and then tradable allowances.

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user's picture

I also have same question. When there are only few countries where people eat whale and the government is efficient (low cost of survillance and monitoring of compliance), a heavy tax can stop (decrease) whaling. The only support to Command and control is that if Whale are at a brink of extinction and if government is not efficient and monitoring machanism is weak.

user's picture

we should stop eating whale meat to save animal life.

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