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Environment, irreversibility and optimal effluent standards

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  • Jou, Jyh-Bang

Abstract

The present article investigates the use of performance standards to correct environmental externalities. Each firm in an industry emits waste in the production process, and, in turn, the average waste emissions of the industry adversely affect the firm's productivity. The firm, which incurs sunk costs when employing capital to abate waste emissions, is uncertain about the efficiency of capital. The firm will underestimate environmental externalities and will therefore pollute more than is socially efficient. To correct this tendency, the regulator can set a limit on either emissions or the emission‐output ratio at the socially efficient level. The firm will invest more, produce more, and pollute less when the regulator implements the former than when the regulator implements the latter.

Suggested Citation

  • Jou, Jyh-Bang, 2004. "Environment, irreversibility and optimal effluent standards," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 1-32.
    • Handle: RePEc:ags:aareaj:117864
    DOI: 10.22004/ag.econ.117864
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    References listed on IDEAS

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    Cited by:

    1. Jyh-Bang Jou, 2014. "Determinants of Efficient Growth Boundaries with Balanced Budgets and Stochastic Rents," Spatial Economic Analysis, Taylor & Francis Journals, vol. 9(1), pages 93-111, March.
    2. Lee, Tan & Jou, Jyh-Bang, 2007. "The regulation of optimal development density," Journal of Housing Economics, Elsevier, vol. 16(1), pages 21-36, March.
    3. Jyh-Bang Jou & Charlene Tan Lee, 2019. "Optimal statute of limitations under land development timing decisions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(1), pages 1-20, February.
    4. Zhen Zhang & Joshua Hinger & David Audretsch & Guojun Song, 2015. "Environmental technology transfer and emission standards for industry in China," The Journal of Technology Transfer, Springer, vol. 40(5), pages 743-759, October.
    5. Jou, Jyh-Bang & Lee, Tan (Charlene), 2016. "How does statutory redemption affect a buyer's decision at the foreclosure sale?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 263-272.

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