Since zoning determines where factories are allowed to be built and the EPA sets limits on the amount of pollution allowed, is it accurate to say that the government is predetermining the externality equilibrium?
Think of this less as predetermination and more as "getting in the way". The government is setting those restrictions with no way of knowing where communities desire factories or how much pollution should be allowed. This shifts market outcomes in some predictable (firms seeking to pollute to that limit during production) and unpredictable ways.
I would suggest that the key concept is that there is no such thing as a proper steady state equilibrium. Equilibrium is, instead, a light at the end of the tunnel. By allowing a market to continue acting, it will progress toward equilibrium without any single player knowing what or where that equilibrium point is. So for this example, the EPA and zoning boards are planning outcomes where, if allowed to operate and assuming frequent relitigation of property rights, a market would generate many outcomes over time. To truly know how to zone or what level of pollution to allow is more than an environmental question, it's a market process question. It has to consider preferences of all firms, consumers, and residents. All of which are impossible to completely aggregate into one person or commission. By rolling back those zoning and EPA restrictions (and ensuring common law property rights are relitigated frequently and enforced consistently), markets for these externalities will generate stronger solutions.
We just don't know what those solutions will be, and that makes a lot of voters and officials uncomfortable.
Since zoning determines where factories are allowed to be built and the EPA sets limits on the amount of pollution allowed, is it accurate to say that the government is predetermining the externality equilibrium?
Think of this less as predetermination and more as "getting in the way". The government is setting those restrictions with no way of knowing where communities desire factories or how much pollution should be allowed. This shifts market outcomes in some predictable (firms seeking to pollute to that limit during production) and unpredictable ways.
I would suggest that the key concept is that there is no such thing as a proper steady state equilibrium. Equilibrium is, instead, a light at the end of the tunnel. By allowing a market to continue acting, it will progress toward equilibrium without any single player knowing what or where that equilibrium point is. So for this example, the EPA and zoning boards are planning outcomes where, if allowed to operate and assuming frequent relitigation of property rights, a market would generate many outcomes over time. To truly know how to zone or what level of pollution to allow is more than an environmental question, it's a market process question. It has to consider preferences of all firms, consumers, and residents. All of which are impossible to completely aggregate into one person or commission. By rolling back those zoning and EPA restrictions (and ensuring common law property rights are relitigated frequently and enforced consistently), markets for these externalities will generate stronger solutions.
We just don't know what those solutions will be, and that makes a lot of voters and officials uncomfortable.