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Intertemporal effects of environmental mandates

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  • Richard Farmer

Abstract

Environmental mandates can impose large costs on the businesses that must comply with them. Understanding the effects of those costs on production decisions may require a dynamic framework if environmental damages (and the costs of complying with mandates) depend on cumulative production or the passage of time. This paper focuses on the time dimension of general categories of fixed and variable costs arising from different types of mandates. The paper develops an optimal control model to predict how such costs may jointly affect current production rates, plant closure dates, and cumulative production. Theoretical results, derived from the comparative statics of the system of equations describing the solution to that model, identify circumstances in which the policy goals of greater production and greater environmental protection may not allways be at odds. Copyright Kluwer Academic Publishers 1997

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  • Richard Farmer, 1997. "Intertemporal effects of environmental mandates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(3), pages 365-381, April.
    • Handle: RePEc:kap:enreec:v:9:y:1997:i:3:p:365-381
    DOI: 10.1007/BF02441405
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    References listed on IDEAS

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    Cited by:

    1. Richard D. Farmer, 2006. "Risk-Smoothing Across Time and the Demand for Inventories: A Mean-Variance Approach," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 699-722, Fall.

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