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Regulation and Unintended Consequences

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Abstract

Production of desirable outputs such as Kwh of electricity are often accompanied by the production of undesirable or ‘bad’ outputs such as SO2. These undesirable outputs are frequently regulated in the sense that their production is not allowed to exceed certain amounts. In this paper we analyze what we call the unintended consequences of regulation of bads where that regulation limits the quantity of bads produced. We consider the simple case in which there is one good and one bad output. Under constant returns to scale we provide a theorem that characterizes the situation in which quantity regulation of the bad output restricts the production of the intended good output. Our theorem is in the spirit of Shephard’s proof of the Law of Diminishing Returns.

Suggested Citation

  • Färe, Rolf & Grosskopf, Shawna, 2012. "Regulation and Unintended Consequences," CERE Working Papers 2012:17, CERE - the Center for Environmental and Resource Economics.
  • Handle: RePEc:hhs:slucer:2012_017
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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2012-17.pdf
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    1. Baumgartner, Stefan & Dyckhoff, Harald & Faber, Malte & Proops, John & Schiller, Johannes, 2001. "The concept of joint production and ecological economics," Ecological Economics, Elsevier, vol. 36(3), pages 365-372, March.
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    Cited by:

    1. Jeanneaux, Philippe & Latruffe, Laure, 2016. "Modelling pollution-generating technologies in performance benchmarking: Recent developments, limits and future prospects in the nonparametric frameworkAuthor-Name: Dakpo, K. Hervé," European Journal of Operational Research, Elsevier, vol. 250(2), pages 347-359.
    2. Dakpo, K & Jeanneaux, Philippe & Latruffee, Laure, 2015. "Empirical comparison of pollution generating technologies in nonparametric modelling: The case of greenhouse gas emissions in French sheep meat farming," 2015 Conference, August 9-14, 2015, Milan, Italy 211557, International Association of Agricultural Economists.
    3. Antonio Peyrache & Minyan Zhu, 2013. "The quality and efficiency of public service delivery in the UK and China," CEPA Working Papers Series WP052013, School of Economics, University of Queensland, Australia.
    4. K Hervé Dakpo & Philippe Jeanneaux & Laure Latruffe, 2014. "Inclusion of undesirable outputs in production technology modeling:The case of greenhouse gas emissions in French meat sheep farming," Working Papers SMART - LERECO 14-08, INRA UMR SMART-LERECO.

    More about this item

    Keywords

    Regulation; Unintended Consequences;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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