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The Economics of Regulatory Tiering

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  • William A. Brock
  • David S. Evans

Abstract

Many regulations impose lighter requirements on smaller firms than on larger firms. Such differential treatment is known as tiering. This article presents a framework for analyzing tiering. It assumes that regulators use taxes to reduce negative externalities, that the collection of taxes imposes administrative costs on the taxed firm and the regulatory agency, and that firm heterogeneity arises because firms have differential access to a scarce factor. The scarce factor is taken as managerial ability, although this identity is not essential for any of the results obtained. The article shows that when there are scale economies in regulatory compliance, tiered regulations may be Pareto-superior to untiered regulations under certain circumstances. It then compares existing tiering schemes with Pareto-efficient tiering schemes and suggests possible improvements in existing tiering schemes.

Suggested Citation

  • William A. Brock & David S. Evans, 1985. "The Economics of Regulatory Tiering," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 398-409, Autumn.
    • Handle: RePEc:rje:randje:v:16:y:1985:i:autumn:p:398-409
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    Cited by:

    1. Francesco Trebbi & Miao Ben Zhang, 2022. "The Cost of Regulatory Compliance in the United States," NBER Working Papers 30691, National Bureau of Economic Research, Inc.
    2. Daniel L. Millimet, 2003. "Environmental Abatement Costs and Establishment Size," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 281-296, July.
    3. John Stranlund & Carlos Chávez, 2013. "Who should bear the administrative costs of an emissions tax?," Journal of Regulatory Economics, Springer, vol. 44(1), pages 53-79, August.
    4. Kelly, Cecelia & Milham, Nick & Douglas, Bob & Moldrich, Natasha, 1995. "How High is the Step? Regulatory Thresholds and the Growth and Efficiency of Small Agribusiness Firms in Australia," 1995 Conference (39th), February 14-16, 1995, Perth, Australia 170886, Australian Agricultural and Resource Economics Society.
    5. Dean, Thomas J. & Brown, Robert L. & Stango, Victor, 2000. "Environmental Regulation as a Barrier to the Formation of Small Manufacturing Establishments: A Longitudinal Examination," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 56-75, July.
    6. Maurice D. Levi & Barrie R. Nault, 2004. "Converting Technology to Mitigate Environmental Damage," Management Science, INFORMS, vol. 50(8), pages 1015-1030, August.
    7. Simon, Daniel H. & Prince, Jeffrey T., 2016. "The effect of competition on toxic pollution releases," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 40-54.
    8. Kaplow, Louis, 2019. "Optimal regulation with exemptions," International Journal of Industrial Organization, Elsevier, vol. 66(C), pages 1-39.
    9. Becker, Randy A. & Pasurka, Carl & Shadbegian, Ronald J., 2013. "Do environmental regulations disproportionately affect small businesses? Evidence from the Pollution Abatement Costs and Expenditures survey," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 523-538.
    10. Barrie R. Nault & Steffen Zimmermann, 2019. "Balancing Openness and Prioritization in a Two-Tier Internet," Information Systems Research, INFORMS, vol. 30(3), pages 745-763, September.
    11. Coria, Jessica & Kyriakopoulou, Efthymia, 2015. "Environmental Policy and the Size Distribution of Firms," Working Papers in Economics 614, University of Gothenburg, Department of Economics.
    12. Coria, Jessica & Kyriakopoulou, Efthymia, 2018. "Environmental policy, technology adoption and the size distribution of firms," Energy Economics, Elsevier, vol. 72(C), pages 470-485.
    13. Coria, Jessica & Jaraite, Jurate, 2015. "Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes," Working Papers in Economics 609, University of Gothenburg, Department of Economics.
    14. Anthony Heyes, 2009. "Is environmental regulation bad for competition? A survey," Journal of Regulatory Economics, Springer, vol. 36(1), pages 1-28, August.
    15. O'Shaughnessy, Eric, 2022. "How policy has shaped the emerging solar photovoltaic installation industry," Energy Policy, Elsevier, vol. 163(C).
    16. Louis Kaplow, 2017. "Optimal Regulation with Exemptions," NBER Working Papers 23887, National Bureau of Economic Research, Inc.
    17. Becker, Randy A. & Pasurka, Carl & Shadbegian, Ronald J., 2013. "Do environmental regulations disproportionately affect small businesses? Evidence from the Pollution Abatement Costs and Expenditures survey," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 523-538.

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