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Regulation of location-specific externalities

Eirik S. Amundsen (), Lars Hansen () and Hans Jørgen Whitta-Jacobsen ()
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Eirik S. Amundsen: Department of Economics, the University of Bergen
Hans Jørgen Whitta-Jacobsen: Department of Economics, University of Copenhagen

No 2018/11, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: In this paper, we study regulation of externalities involving many small-scale polluters, where the damages from emissions depend on the polluters’ locations. Examples include nutrient and pesticide emissions from farms, particulate emissions from vehicles and home heating units, emissions of hazardous chemical compounds from small business etc. With such emission problems, regulatory authorities often apply a combination of firm-level, possibly differentiated standards for ‘cleaner’ technologies, and market-level, undifferentiated dirty input regulations. We establish general principles for how such regulations should be designed and combined. We find that the optimal regulation design crucially depends on the type of cleaner technologies available to polluters. If these are ‘emission capturing’, optimal technology standards encourage the use of cleaner technologies in both high and low damage areas, while if they are ‘input displacing’, optimal technology regulation encourages cleaner technologies in high damage areas, but discourages their use in low damage areas. Regulation should always discourage the use of dirty input and the optimal regulation intensity may be substantial, particularly if the available cleaner technologies are input displacing.

Keywords: Location-specific externalities; clean technologies; regulation; policy (search for similar items in EconPapers)
JEL-codes: D62 H23 Q58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-11
New Economics Papers: this item is included in nep-env
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http://okonomi.foi.dk/workingpapers/WPpdf/WP2018/IFRO_WP_2018_11.pdf (application/pdf)

Related works:
Working Paper: Regulation of Location-Specific Externalities (2018) Downloads
Working Paper: Regulation of location-specific externalities (2018) Downloads
Working Paper: Regulation of location-specific externalities (2018) Downloads
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