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Size control or intensity control: a comparative study of two Common Environmental Regulations

Hongyu Nian, Chunhua Wang and Haitao Yin ()
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Hongyu Nian: Shanghai Jiao Tong University
Chunhua Wang: Shanghai Jiao Tong University
Haitao Yin: Shanghai Jiao Tong University

Journal of Regulatory Economics, 2022, vol. 61, issue 3, No 1, 169-190

Abstract: Abstract This paper compares two common environmental regulations: size control and intensity control. We compare the impacts of the two environmental regulations on firm competitiveness and market structure. Our findings show that size control and intensity control both improve firm competitiveness but through very different mechanisms. Intensity control motivates firms to innovate and develop cost-saving and environmentally friendly input and product portfolios to reduce pollution and improve competitiveness, which is consistent with the Porter hypothesis. In contrast, size control creates no incentive for surviving firms to innovate or reduce pollution, and it acts as a windfall benefit that grants these firms a less competitive market and thus firm competitiveness, a mechanism that is underexplored by the Porter hypothesis. Intensity control also results in a less competitive market but to a much smaller extent than size control. Therefore, intensity control performs better than size control from the perspective of social welfare.

Keywords: Environmental regulation; Firm competitiveness; Firm pollution; Firm innovation; Input and product portfolios; Q52; Q55; Q58; L10 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11149-022-09450-x

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