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Performance, Process, and Design Standards in Environmental Regulation

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  • Hueth, Brent
  • Melkonyan, Tigran A.

Abstract

This papers analyzes efficient regulatory design of a polluting firm who has two kinds of private information about its production environment. First, the firm has better information than the regulator regarding technological possibilities for controlling pollution; and second, some aspects of the firm's implementation of a given technology are potentially unobservable. Design standards that specify a particular pollution abatement technology for the firm are efficient when the level of information asymmetry regarding technology choice is low, and when the cost of performance measurement is high; performance standards are efficient when the level of penalty needed to induce efficient implementation is unlikely to bankrupt the firm; and process standards are efficient when it is not very costly to monitor firm actions. We identify circumstances when each individual regulatory instrument (design, performance, and process standards) alone or in some combination is efficient.

Suggested Citation

  • Hueth, Brent & Melkonyan, Tigran A., 2003. "Performance, Process, and Design Standards in Environmental Regulation," 2003 Annual meeting, July 27-30, Montreal, Canada 22148, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea03:22148
    DOI: 10.22004/ag.econ.22148
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    References listed on IDEAS

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    1. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    2. John M. Antle, 1995. "Choice and Efficiency in Food Safety Policy," Books, American Enterprise Institute, number 53485, September.
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    Cited by:

    1. Cho, Bo-Hyun & Hooker, Neal H., 2006. "Selection of Food Safety Standards," 2006 Annual meeting, July 23-26, Long Beach, CA 21077, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    Keywords

    Environmental Economics and Policy;

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