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Tailored Regulation: Will Voluntary Site-Specific Environmental Performance Standards Improve Welfare?


  • Allen Blackman

    () (Resources for the Future)

  • James Boyd

    (Resources for the Future)


Increasingly popular tailored regulation (TR) initiatives like the Environmental Protection Agency's Project XL allow industrial facilities to voluntarily substitute site-specific environmental performance standards for inefficient command-and-control regulations. TR can significantly reduce participants' costs of complying with environmental regulations, but in doing so it can also give these participants a competitive advantage. Here we develop an analytical model to show that TR can have adverse welfare effects when it enables relatively inefficient firms in oligopolistic markets to “steal” market share from more efficient firms, and we characterize the regulatory policies that give rise to such outcomes. We also show that regulators' efforts to diffuse the benefits of site-specific agreements among nonparticipating firms dampen incentives to participate in TR.

Suggested Citation

  • Allen Blackman & James Boyd, 2002. "Tailored Regulation: Will Voluntary Site-Specific Environmental Performance Standards Improve Welfare?," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 309-326, October.
  • Handle: RePEc:sej:ancoec:v:69:2:y:2002:p:309-326

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    Cited by:

    1. Rinaldo Brau & Carlo Carraro, 2011. "The design of voluntary agreements in oligopolistic markets," Journal of Regulatory Economics, Springer, vol. 39(2), pages 111-142, April.

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