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Regulation and Unintended Consequences

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Author Info

  • Färe, Rolf

    ()
    (Dept. of Economics)

  • Grosskopf, Shawna

    ()
    (CERE, Centre for Environmental and Resource Economics)

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    Abstract

    Production of desirable outputs such as Kwh of electricity are often accompanied by the production of undesirable or ‘bad’ outputs such as SO2. These undesirable outputs are frequently regulated in the sense that their production is not allowed to exceed certain amounts. In this paper we analyze what we call the unintended consequences of regulation of bads where that regulation limits the quantity of bads produced. We consider the simple case in which there is one good and one bad output. Under constant returns to scale we provide a theorem that characterizes the situation in which quantity regulation of the bad output restricts the production of the intended good output. Our theorem is in the spirit of Shephard’s proof of the Law of Diminishing Returns.

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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2012-17.pdf
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    Bibliographic Info

    Paper provided by CERE - the Center for Environmental and Resource Economics in its series CERE Working Papers with number 2012:17.

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    Length: 7 pages
    Date of creation: 20 Nov 2012
    Date of revision:
    Handle: RePEc:hhs:slucer:2012_017

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    Web page: http://www.cere.se

    Related research

    Keywords: Regulation; Unintended Consequences;

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    1. Baumgartner, Stefan & Dyckhoff, Harald & Faber, Malte & Proops, John & Schiller, Johannes, 2001. "The concept of joint production and ecological economics," Ecological Economics, Elsevier, vol. 36(3), pages 365-372, March.
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    Cited by:
    1. Antonio Peyrache & Minyan Zhu, 2013. "The quality and efficiency of public service delivery in the UK and China," CEPA Working Papers Series WP052013, School of Economics, University of Queensland, Australia.

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