Making Clean Firms Cleaner: Targeting Environmental Regulation to Maximize Returns

Paige Weber

AEA Papers and Proceedings, 2021, vol. 111, 436-39

Abstract: Many environmental regulations are designed to clean up the dirtiest firms. However, if pollution intensity is negatively correlated with market share, this approach may not be the most cost-effective way to reduce pollution. This paper illustrates the theoretical conditions under which it is more cost effective to incentivize pollution intensity improvements among relatively cleaner firms. I provide a decision rule for regulators designing pollution reduction policy, and I show that the California wholesale electricity sector exhibits investment behavior consistent with the trade-off implied by this rule.

JEL-codes: D25 G31 L94 L98 Q48 Q52 Q58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1257/pandp.20211089

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