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

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  • Allen Blackman
  • James Boyd

Abstract

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 if 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.

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  • Allen Blackman & James Boyd, 2002. "Tailored Regulation: Will Voluntary Site‐Specific Environmental Performance Standards Improve Welfare?," Southern Economic Journal, John Wiley & Sons, vol. 69(2), pages 309-326, October.
    • Handle: RePEc:wly:soecon:v:69:y:2002:i:2:p:309-326
    DOI: 10.1002/j.2325-8012.2002.tb00494.x
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    Cited by:

    1. Maia David, 2004. "Les approches volontaires comme instrument de régulation environnementale," Revue Française d'Économie, Programme National Persée, vol. 19(1), pages 227-273.
    2. Marcus Alexander & Matthew C. Harding & Department of Economics & MIT, 2003. "Self-regulation and the Certification of the European Information Economy The Case of e-Healthcare Information Provision," Economics Series Working Papers 154, University of Oxford, Department of Economics.

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