THE RELATIVE EFFICIENCY OF DIFFERENT STANDARDS WHEN FIRMS VARY

Pollution standards in practice take many forms, such as measuring pollution per unit of output rather than just restricting pollution. This paper uses simulations to provide some evidence on the effects of these two forms of standards when firms vary. For the cases studied, it shows that a pollution standard can lead to higher profits, but a pollution-per-output standard leads to higher output and lower price; the overall efficiency effects are therefore ambiguous.