Effect of regulation on efficiency: evidence from Indian cement industry

The main objective of the paper is to analyze the impact of environmental regulation on technical efficiencies of Indian cement producing firms. It derives the technical efficiency (TE) scores of firms in the presence and absence of regulation and brings out the differences in their magnitudes in two scenarios: one in which the firms take initiatives to comply with the set standards by investing additional resources for pollution abatement and the other in which the firms do not take the necessary initiatives. The paper uses establishment level data from Annual Survey of Industries on cement for two years, the most recent data published for 2003–2004 and a previous year for 1999–2000 when the environmental regulations in India were in the initial phases of implementation. A non-parametric deterministic method of data envelopment analysis (DEA) is used to derive the TE scores of firms. The traditional DEA framework is modified by introducing weak disposability of bad outputs to characterize ‘effective environmental regulation’, which ensures that reducing pollution is not costless. For both years it has been found that the TE scores of firms under ‘effective regulation’ scenario are either higher than or equal to those derived under ‘ineffective regulation’ scenario resulting in a higher average TE at the industry level in the ‘effective regulation’ scenario.     

基于多层委托—代理关系的环境规制研究

环境规制中企业、政府和环境规制机构三者之间的博弈关系是影响环境污染治理的重要因素。本文运用博弈论原理,分析了信息不对称下规制机构与企业合谋的可能与政府监管的必要,将环境规制划分为规制合约的设计与选择、执行与监管两个阶段,构建了多阶段的委托代理模型,考察了政府合约设计和监管、环境规制机构与企业合谋的因素,得到了环境规制中影响行为主体的关键政策变量,并提出了相应的政策建议。     

Can international environmental cooperation be bought?

In this paper a two-stage game of international environmental agreement formation with asymmetric countries is analytically solved. The equilibrium of the game makes it possible to determine the size and composition of a stable agreement. Two cases are studied. In the first case, countries differ only in abatement costs, while in the second case, they differ in environmental damages. In both cases, two different institutional settings, one without transfers and another with transfers, are considered. The results establish that the asymmetry assumption has no important effects on the scope of cooperation in comparison with the symmetric case if transfers are not used or abatement costs represent the only difference among countries. However, when the only difference is in environmental damages, the level of cooperation that can be bought through a self-financed transfer scheme increases with the degree of asymmetry.     

Optimal input substitution of a firm facing an environmental constraint

In this paper we consider the dynamic behavior of a firm subject to environmental regulation. As a social planner the government wants to reduce the level of pollution. To reach that aim it can, among others, set an upper limit on polluting emissions of the firm. The paper determines how this policy instrument influences the firm's decisions concerning investments, abatement efforts, and the choice whether to leave some capacity unused or not. The abatement process is modeled as input substitution rather than end-of-pipe. Using standard control theory in determining the firm's optimal dynamic investment decisions it turns out that it is always optimal to approach a long run optimal level of capital. In some cases, this equilibrium is reached within finite time, but usually it will be approached asymptotically. Different scenarios are considered, ranging from attractive clean input to unattractive clean input, and from a mild emission limit to a very tight one. It is shown that for large capital stocks and/or when marginal cash flow per unit of emissions is larger for the dirty input than for the clean input, it can be optimal to actually leave some production capacity unused. Also, since the convex installation costs suggest to spread investments over time, it can happen that investment in productive capital is positive although capacity remains unused.     

An environmental input-output model with multiple criteria

It is often claimed that there is a trade-off between economic goals and the quality of the environment. For this reason, an environmental input-output optimization model with multiple objectives is formulated. The criteria are the minimization of factor costs to produce the Gross National Product and the minimization of net pollution for a given level of final demand. Using the LeChatelier-Samuelson principle, we analyze the changes in the production of the sectors and in the prices of the goods (described by the dual model) due to the change in the preferences of the decision makers. It can be shown that higher weights for the environmental objectives imply — in tendency —non-decreasing production of the sectors andnon-decreasing abatement activities. The changes of prices are ambiguous. The condition for increasing prices is given. To some degree, the opposite results can be achieved, if maximization of the value of final demand (or of private consumption) and minimization of net pollution under the constraints for primary input are taken as objective functions. In this case, increasing weights for environmental goals will leadin tendency tonon-increasing final demand and tonon-increasing net pollution. Under given conditions, higher environmental quality will be achieved bynon-increasing gross production and abatement activities.     

Multi‐area transboundary pollution problems under learning by doing in Yangtze River Delta Region,China

In this paper, we investigate transboundary pollution problems in the Yangtze River Delta Region where emission permits trading and abatement costs under learning by doing. At first, we use the optimal control theory to analyze two‐area transboundary pollution problems and give an empirical study for the Shanghai Municipality and Zhejiang Province by using four‐order Runge‐Kutta method and the authentic economic data. Then, we extend two‐area transboundary pollution problems to three‐area transboundary pollution problems and also give an empirical study by adopting the authentic economic data of Shanghai Municipality, Zhejiang Province, and Jiangsu Province. Finally, we get a similar conclusion that the abatement cost will decrease with the amelioration of abatement technology.     

Pollution control quasi-equilibrium problems with joint implementation of environmental projects

In this paper, we show how one of the Kyoto Protocol mechanisms, the so-called joint implementation in environmental projects, can be transformed into and studied as an infinite-dimensional quasi-variational inequality. Specifically, we examine the situation in which different countries attempt to fulfill Kyoto commitments by investing in emission reduction or emission removal projects in countries where the abatement costs are lower. We derive the equilibrium conditions and prove their characterization in terms of an infinite-dimensional quasi-variational inequality problem. Finally, we discuss the existence of solutions.     

Marketable permits in a stochastic dynamic model of the firm

This contribution attempts to determine the effects of environmental regulation on the growth of an individual firm. Here, it is assumed that the firm revenue is stochastic. The government tries to reduce pollution by creating a market on which the firm has to buy permits in order to be allowed to pollute the environment.Pollution is an inevitable byproduct of the firm production process, and in our model the firm is offered two ways to deal with it. The first is to buy marketable permits, and the second is to clean up pollution which can be achieved through investing in abatement capital stock.It turns out that the firm optimal trajectory consists of at most seven different policies. They can be depicted in a feedback diagram from which we can conclude that, provided that the firm never faces a shortage of cash, productive and abatement capital stocks ultimately reach their equilibrium levels where marginal revenue equals marginal costs.This paper was presented at EURO XIII, July 19–22, 1994 in Glasgow, Scotland. The research of the second author has been made possible by a fellowship of the Royal Netherlands Academy of Arts and Sciences. Thanks are due to M. Stimming for valuable comments and suggestions and to A. Van Den Elzen for his corrections.     

INTERNATIONAL ENVIRONMENTAL AGREEMENTS WITH DEVELOPED AND DEVELOPING COUNTRIES IN A DYNAMIC APPROACH

This paper is devoted to study the stability of international environmental agreements (IEAs) in a pollution abatement model. We focus our attention on two asymmetric agents: developed countries characterized by a strong measure of environmental awareness and developing ones characterized by less attention to environmental preservation. We model a differential game in order to determine both the optimal path of the abatement levels and stock pollutant as results of open‐loop and feedback Nash equilibria. By means of the concepts of internal and external stability, we explain how the environmental awareness of two types of countries and the number of cooperators and defectors influence the size of stable coalitions. The results establish that the asymmetry assumption does not have consequences for the stability of the grand coalition, which can be obtained only with transfers.     

非同质演化博弈及其在移动污染源监管中的应用

移动污染源是中国环境治理的难点之一。本文分析了监管者与机动车移动污染源之间的博弈关系。通过考察边际成本与边际收益的方式建立了非同质演化博弈模型,讨论了监管成本变化以及机动车异质性治污成本对均衡点位置的影响。计算结果表明,受不同成本特性影响,机动车移动污染源监管博弈会呈现三种不同均衡状态:有效监管状态、无效监管状态和形式监管。在有效监管状态下,较低的处罚水平导致治污水平低下;监管力量薄弱地区会出现无效监管状态;在形式监管中,不规范的责令整改方式会导致整改水平低下的形式主义问题。主要结论为:应提高机动车超标排污处罚水平以提升机动车治污概率;应建立机动车移动污染长效协作监管机制,采用新技术手段,以降低监管成本,加强监管效果;需规范责令整改的程序与流程,防范形式主义。     

OPTIMAL TAXES FOR POLLUTION REGULATION: DYNAMIC,SPATIAL AND STOCHASTIC CHARACTERISTICS

The paper develops a model that incorporates the dynamic, spatial and stochastic aspects of environmental pollution. Conditions for optimal resource allocation between output production and pollution abatement processes are derived. Optimal emission (Pigouvian) taxes which may be used to efficiently regulate pollution in each region are determined. The pattern of emission taxes over time and their relative sizes among different regions are additionally explored with the help of a simplified numerical example.     

个体投资治理污染的随机增长模型

本文研究了个体投资治理污染的随机增长模型.利用随机最优化的方法,得出了随机扰动、个体环保投资及环保技术对福利和经济增长的影响.对我国制定环保政策具有一定的积极作用.     

Can international environmental cooperation be bought: Comment

Fuentes-Albero and Rubio (2010) analytically examine the effects of the countries’ heterogeneity on the international environmental cooperation. They consider two types of countries having different abatement costs in one case and different environmental damages in another case. Furthermore it is analyzed whether a self-financed transfer system can diminish these heterogeneity effects. The paper shows for both scenarios of asymmetry and no transfers that the maximum level of cooperation consists of three countries of the same type. For the case of heterogeneity in environmental damages, Fuentes-Albero and Rubio conclude that an agreement between one type 1 and one type 2 country is also self-enforcing given that the differences in the damages are not very large. In this comment, the derivation of the last mentioned result is shown to be incorrect by proving that this coalition is not self-enforcing.     

Environmental considerations on the optimal product mix

Several types of regulations limit the amount of different emissions that a firm may create from its production processes. Depending on the emission, these regulations could include threshold values, penalties and taxes, and/or emission allowances that can be traded. However, many firms try to comply with these regulations without a systematic plan, often leading not only to emission violations and high penalties, but also to high costs. In this paper, we present two mathematical models that can be used by firms to determine their optimal product mix and production quantities in the presence of several different types of environmental constraints, in addition to typical production constraints. Both models are comprehensive and incorporate several diverse production and environmental issues. The first model, which assumes that each product has just one operating procedure, is a linear program while the second model, which assumes that the firm has the option of producing each product using more than one operating procedure, is a mixed integer linear program. The solutions of both models identify the products that the firm should produce along with their production quantities. These models can be used by firms to quickly analyze several “what if” scenarios such as the impact of changes in emission threshold values, emission taxes, trading allowances, and trading transaction costs.     

Decision support method for cost-effective emission control on a regional scale

In the paper an implementation of a decision support algorithm for selection of emission abatement strategy on a regional scale is presented. The approach refers to optimal allocation of financial means for emission reduction in a given set of power and heating plants. The implementation considered is sulfur-oriented. The problem is formally stated as cost-constrained minimization of environmental damage function by the optimal choice of desulfurization technologies, within the set of the controlled plants. The receptor-oriented objective function utilizes air pollution forecast preprocessed by a regional scale dispersion model. An heuristic algorithm is implemented to solve the optimization problem. This is the improved and more general version of the method discussed earlier in [1]. Compared with that version, the cost constraints are considered in a more realistic form; two components of the total costs – investment and operational – are considered individually for each power plant and for the selected emission abatement technology. This requires a special construction of the optimization algorithm. Computational test results are presented for the set of the major power plants in the Silesia Region. This revised version was published online in June 2006 with corrections to the Cover Date.     

FISHERY REGULATION UNDER RATIONAL EXPECTATIONS AND COSTLY DYNAMIC ADJUSTMENT

The regulation of a fishery is examined when firms' decision rules are not invariant to regulatory intervention. When faced with internal dynamic costs, firms have incentives to forecast future regulatory actions. The regulatory “game” becomes one between intelligent agents, not one between an intelligent regulator and “nature”—agents who behave as automatons. Regulations feed back on decisions of agents; this alters the characteristics of the equilibrium time paths of the fish harvest and thus, of the optimal regulatory interventions. Within such a framework equilibrium is characterized and alternative policy interventions are evaluated.     

THE SIZE OF FARSIGHTED STABLE COALITIONS IN A GAME OF POLLUTION ABATEMENT

Abstract The game theoretical analysis of international environmental problems has received increasing attention in recent years. Major issues are as follows. Under which conditions will an international environmental agreement (IEA) be signed? Will the agreement be stable? Game theory has given different answers to these questions; in particular, it is possible to show that if countries are myopic then only small stable coalitions occur, but if they are farsighted then both large and small stable coalitions exist. This paper studies the size of a farsighted stable IEA by considering a quadratic cost function in a pollution abatement model. Following Rubio and Ulph [2006] , we consider both the case of non‐negative emissions as well as the case of unrestricted ones.     

COLLECTIVE DECISION MAKING IN AN INTERNATIONAL RIVER POLLUTION MODEL

In this paper, we study international river pollution problems. We introduce a model in which countries located along a river from upstream to downstream derive benefits from causing pollution, but also incur environmental costs from experiencing its own pollution and the pollution of all its upstream countries. The total welfare, being the sum of all benefits minus the sum of all costs, is maximized when all countries cooperate. Several principles from international water law are applied to find reasonable and fair distributions of the total welfare that can be obtained under full cooperation. Such a distribution of the welfare at efficient pollution levels can be implemented by monetary compensations.     

ENVIRONMENTAL COMPLIANCE AND OPTIMAL OIL AND GAS EXPLOITATION

This paper examines the impacts of environmental regulations on firms in the oil and gas industry. A model is developed using optimal control theory, which extends the existing models by incorporating the environmental compliance costs into the exploration and production stages. An approach for measuring the cumulative impacts of these regulations on the firm's exploration and production is presented. The results indicate that rising environmental compliance costs lead to reductions in investment and production, and the alteration of investment and production profiles. This implies that less resources will be developed and associated economic benefit will decline. Therefore, it is vital for policy makers to consider carefully whether the perceived environmental benefits derived from these regulations justify associated compliance costs.     

Regulatory impact of environmental standards on the eco-efficiency of firms

In this paper, we propose an approach to implement environmental standards into Data Envelopment Analysis (DEA) and in this way to measure their regulatory impact on eco-efficiency of firms. One standard feature of basic DEA models lies in the exogeneity of inputs, desirable and undesirable outputs. Taking into account the environmental constraints, we therefore apply the bounded variable DEA model. The regulatory impact is assessed as difference in eco-efficiency scores before and after fictive introduction of an environmental standard. Furthermore, we distinguish between weak and strong disposability of undesirable outputs and develop corresponding models. Assessing the regulatory impact of environmental standards in advance provides support for environmental policymakers in choosing appropriate instruments and in adjusting the intensity of regulation.