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Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns

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  • Paige Weber

Abstract

Many environmental regulations are designed to clean up the dirtiest firms. However, if pollution intensity is negatively correlated with market share, this approach may not be the most cost-effective way to reduce pollution. This paper illustrates the theoretical conditions under which it is more cost effective to incentivize pollution intensity improvements among relatively cleaner firms. I provide a decision rule for regulators designing pollution reduction policy, and I show that the California wholesale electricity sector exhibits investment behavior consistent with the trade-off implied by this rule.

Suggested Citation

  • Paige Weber, 2021. "Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 436-439, May.
    • Handle: RePEc:aea:apandp:v:111:y:2021:p:436-39
    DOI: 10.1257/pandp.20211089
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    Citations

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    Cited by:

    1. Lucas Cain & Danae Hernandez-Cortes & Christopher Timmins & Paige Weber, 2023. "Recent Findings and Methodologies in Economics Research in Environmental Justice," CESifo Working Paper Series 10283, CESifo.

    More about this item

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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