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Firm behaviour under pollution ratio standards with non-compliance

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  • Aaron Hatcher

Abstract

This paper compares a firm’s short run optimal production and abatement rules under emission level standards and standards expressed in terms of emissions per unit of output (ratio standards). The models allow for non-compliance with standards, with expected penalties dependant on either level or relative violations of the standard in question. It is shown that ratio arguments make a difference to the optimal decision rules derived for a profit-maximising firm. For example, for a given level of emissions the firm both produces more, and abates more, under a ratio standard, so that ratio and level standards cannot be used interchangeably to achieve the same combination of emissions and output. The implications for the efficiency of pollution control are briefly discussed. Copyright Springer Science+Business Media, Inc. 2007

Suggested Citation

  • Aaron Hatcher, 2007. "Firm behaviour under pollution ratio standards with non-compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(1), pages 89-98, September.
  • Handle: RePEc:kap:enreec:v:38:y:2007:i:1:p:89-98
    DOI: 10.1007/s10640-006-9063-6
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    References listed on IDEAS

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    7. Hatcher, Aaron, 2005. "Non-compliance and the quota price in an ITQ fishery," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 427-436, May.
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    10. Keeler, Andrew G., 1991. "Noncompliant firms in transferable discharge permit markets: Some extensions," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 180-189, September.
    11. Malik, Arun S., 2002. "Further Results on Permit Markets with Market Power and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 371-390, November.
    12. Jon D. Harford & Gordon Karp, 1983. "The Effects and Efficiencies of Different Pollution Standards," Eastern Economic Journal, Eastern Economic Association, vol. 9(2), pages 79-89, Apr-Jun.
    13. Udo Ebert, 1998. "Relative standards: A positive and normative analysis," Journal of Economics, Springer, vol. 67(1), pages 17-38, February.
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    Cited by:

    1. Voßwinkel, Jan & Birg, Laura, 2015. "Minimum Quality Standards and Non-Compliance," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112883, Verein für Socialpolitik / German Economic Association.
    2. Derek Lemoine, 2017. "Escape from Third-Best: Rating Emissions for Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 789-821, August.

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    More about this item

    Keywords

    Pollution; Emissions; Abatement; Level standards; Ratio standards; Compliance; D21; L51; Q52;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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