I heard a concept today that could potentially revolutionize my whole standpoint on government regulation on various things. The premise is that outright banning of a particular activity, i.e., polluting or drinking, often results in externalities more negative than the banned activity, and sometimes just doesn’t work at all: much more preferable to this is to allow it, but under such conditions that its negative consequences are at least negated by the associated disincentives.

The example given was one of poaching. In Kenya, a law was passed outlawing the killing of wild animals. This meant that the wild animals would compete with livestock for water and grazing land, so the livestock owners fenced off grazing land and water holes. In the end, more endangered animals died after the prohibition than before, but because of starvation/thirst rather than hunting.

Likewise in several places, a system has been instituted so that rather than outright banning polluting industries, industries must remove a certain percentage of pollutants greater than they put out. This way companies either don’t pollute, or if they do, the environment and economy are both better off than they were before. Old grungy cars jump in value because these companies are taking them off the road in order to reduce emissions, and everyone wins in the end.

So the question is, how extensible is this concept? Would it make Prohibition Part II feasible? How about cigarettes? Cocaine? I think it could definitely replace dietary prohibitions like New York’s banning of trans-fats, and for power mandates like EnergyStar and California’s ban of incandescent lightbulbs. In fact, the more I think about things that are banned for whatever reason, the more I see that this concept could work for nearly anything except addictive substances: the psychological drive would overcome rational consideration of disincentive and just drive the user into poverty.

What do you think? Are there consequences that I haven’t thought of, or is this really and truly a great legal framework?