Hueth, Brent and Melkonyan, Tigran A. (2009) Standards and the regulation of environmental risk. Journal of Regulatory Economics, 36 (3). pp. 219-246. doi:10.1007/s11149-008-9082-z

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Abstract

We study regulatory design for a pollution-generating firm who is better informed than the regulator regarding pollution mitigation possibilities, and who chooses an unobservable action when employing a particular mitigation plan. We distinguish among performance, process, and design standards, and study the relative merit of each type of regulatory instrument. Relative to previous work on standards design, we emphasize technology and process verification. An optimal performance standard is relatively strict when regulator and firm preferences are congruent, but the regulator may prefer no performance standard at all if verification costs are sufficiently high. A process standard unambiguously increases expected surplus (relative to no regulation) in some environments, and otherwise improves welfare only when it is unlikely to generate a “bad” technology choice by the firm. A design standard can improve welfare if the regulator is sufficiently well informed about the technological possibilities for pollution control, but only when the firm’s private benefits from technology choice are sufficiently small.

Item Type:	Journal Article
Divisions:	Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Regulatory Economics
Publisher:	Springer
ISSN:	0922-680X
Official Date:	2009
Dates:	Date Event 2009 UNSPECIFIED
Volume:	36
Number:	3
Page Range:	pp. 219-246
DOI:	10.1007/s11149-008-9082-z
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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