Environment, irreversibility and optimal effluent standards
AbstractThe present article investigates the use of performance standards to correct environmental externalities. Each firm in an industry emits waste in the production process, and, in turn, the average waste emissions of the industry adversely affect the firm's productivity. The firm, which incurs sunk costs when employing capital to abate waste emissions, is uncertain about the efficiency of capital. The firm will underestimate environmental externalities and will therefore pollute more than is socially efficient. To correct this tendency, the regulator can set a limit on either emissions or the emission‐output ratio at the socially efficient level. The firm will invest more, produce more, and pollute less when the regulator implements the former than when the regulator implements the latter.
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Bibliographic InfoArticle provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.
Volume (Year): 48 (2004)
Issue (Month): 1 (March)
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Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200
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More information through EDIRC
Environmental Economics and Policy;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cahiers de recherche du DÃ©partement des sciences Ã©conomiques, UQAM
9908, Université du Québec à Montréal, Département des sciences économiques.
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