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Developing countries in Asia face a variety of environmental challenges. Although environmental economics grew mostly out of the experience of developed countries, decades of environmental economics research offer important and useful lessons for environmental regulation in developing countries in Asia. We synthesize the theoretical and empirical literature on environmental regulation and highlight important insights on formal regulation such as taxes, standards, and tradable permits, as well as on informal regulation such as information and voluntary approaches. We also discuss directions for future research.

We model optimal contracts and the evolution of precedents by introducing imperfect enforcement into a standard incomplete contracts setup. We assume that biased trial courts can refuse to verify novel evidence but are bound to respect precedents, namely to verify evidence that other judges verified in past cases. Despite judicial biases, optimal contracts are innovative (contingent on both precedents and novel evidence). Noisy evidence and judicial biases, however, introduce enforcement risk and cause incentives to be low-powered. The use of innovative contracts is key. Their litigation refines the law and makes it more informative, so enforcement improves. As a result, parties can in turn write more complete contracts, which enable higher- powered incentives and improve welfare. This beneficial mechanism is hampered by judicial bias, which slows down legal evolution and causes enforcement risk to persist for a long time.

In a model where biased judges can distort contract enforcement, we uncover positive feedback effects between the use of innovative contracts and legal evolution that improve verifiability and contracting over time. We find, however, that the cost of judicial bias also grows over time because the unpredictable application of precedents becomes costlier as the law matures. Contract standardization avoids this cost, statically improving enforcement; but it crowds out innovative contracts, hindering legal evolution. We shed light on the large-scale commercial codification undertaken in the nineteenth century in many common-law countries during a period of booming long-distance trade.

Quality standards are rapidly gaining importance as a result of increasingly globalized trade. Rich country quality requirements are said to have detrimental effects on poor producers in developing countries because they would introduce new trade barriers, prevent small and poor producers from participating in high quality supply chains, and allow multinationals to extract rents. We analyze under which conditions the introduction of quality standards in global value chains may benefit poor producers in developing countries, taking explicitly into account key characteristics of these value chains. We investigate the effects of competition and development and discuss a series of policy implications. ispartof: Journal of Globalization and Development vol:2 issue:2 pages:1-30 status: published