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Harmonizing welfare and externalities: unraveling the product versus process standards puzzle in regulatory policy

Author

Listed:
  • Difei Geng

    (University of Arkansas-Fayetteville)

  • Doyoung Park

    (University of Arkansas-Fayetteville)

Abstract

There are two types of regulatory standards depending on the externalities they are designed to address. One is product standards targeting negative consumption externalities; the other is process standards addressing negative production externalities. Notably, the institutional arrangements for the two types of standards can be different in practice. For instance, the World Trade Organization applies national treatment (NT) to product standards, but its case law favors mutual recognition (MR) for process standards. This paper evaluates the welfare implications of this well-known product/process distinction regarding regulatory standards. We show that, on welfare grounds, the rule of NT performs relatively better under product standards, while MR is relatively more desirable under process standards. This result provides a welfare-based justification for adopting differential institutional rules on regulatory standards of different nature.

Suggested Citation

  • Difei Geng & Doyoung Park, 2023. "Harmonizing welfare and externalities: unraveling the product versus process standards puzzle in regulatory policy," Economics Bulletin, AccessEcon, vol. 43(3), pages 1320-1327.
    • Handle: RePEc:ebl:ecbull:eb-23-00290
    as

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    References listed on IDEAS

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    1. Costinot, Arnaud, 2008. "A comparative institutional analysis of agreements on product standards," Journal of International Economics, Elsevier, vol. 75(1), pages 197-213, May.
    2. T. Huw Edwards, 2012. "Mutual Recognition versus National Treatment of Standards in a Classical Monopoly or Oligopoly," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(3), pages 455-487, September.
    3. Toulemonde, Eric, 2013. "A welfare analysis of the principle of mutual recognition," European Economic Review, Elsevier, vol. 60(C), pages 1-16.
    4. Macedoni, Luca & Weinberger, Ariel, 2022. "Quality heterogeneity and misallocation: The welfare benefits of raising your standards," Journal of International Economics, Elsevier, vol. 134(C).
    5. Robert W. Staiger & Alan O. Sykes, 2011. "International Trade, National Treatment, and Domestic Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 40(1), pages 149-203.
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    JEL classification:

    • F1 - International Economics - - Trade
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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