The control of industrial pollution: Implications for technology choice and growth

To reduce pollution, industrial enterprises can cut production or choose cleaner technologies. A rise in demand increases marginal revenue and, for given plant sizes and costs, profits. Abatement cost can therefore coincide with marginal profits. If economic growth implies a rising demand, then growth can increase incentive to pollute because, other things equal, it makes abatement relatively more costly. The choice of cleaner technologies may be the alternative. Without official pollution control measures, profit-maximizing enterprises will choose polluting technologies. The control measures themselves imply different choice of technologies. Effluent charges and polluter subsidies induce similar responses by an enterprise, but in a competitive industry, the former will yield lower output and pollution levels than would occur under subsidies. Moreover, in certain cases the command-and-control measures can be more effective than incentive-based measures in controlling industrial pollution and promoting growth. A differential in information, monitoring and enforcement costs of different pollution-control measures does not alter the results.