INTEREST GROUPS.
Masur ’15 [Jonathan and Eric Posner; February; John P. Wilson Professor of Law at the University of Chicago Law School; law professor at the University of Chicago Law School; University of Chicago Law School, “Toward a Pigouvian State,” no. 503] jchen
The incentive to lobby for new legislation or regulation dissipates when the regulation takes the form of a Pigovian tax. Of course, a Pigovian tax makes pollution-controlling equipment or materials more valuable and induces firms to install that equipment—that is precisely the point. But it does not do so as directly as regulation that forces firms to reduce emissions below a particular level or install a particular type of equipment. Any given firm would be less certain that regulated entities would install its products. Those firms will then have a smaller incentive to lobby for regulation, and might instead advocate for particularized command-and-control regulation as a substitute for Pigovian taxes.
In addition, Pigovian regulation might in many cases be considered inferior by regulated entities because it does less to inhibit new market entrants. There is a voluminous literature documenting the ways in which existing firms can use regulation to block competitors.160 Generally speaking, regulation can impose significant upfront costs on doing business, as when firms are required to purchase an expensive piece of equipment or obtain a costly or complicated permit. Large, existing enterprises may be able to surmount these regulatory hurdles, while new entrants might have much greater difficulty.161 Pigovian taxes do not have this feature, however. The cost of complying with a Pigovian tax scales linearly with the externality imposed; there is no initial upfront cost and thus no especially great hurdle to new entrants. Conditional upon being regulated, then, existing firms might in some contexts prefer conventional command-andcontrol regulation.