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Are safety and environmental performance standards optimal regulatory instruments?

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Abstract

In safety and environmental regulation, economists have preached the virtues of performance standards as opposed to equipment specification as the proper instruments of control. This prescription is made in the context of actual situations where the firm's product safety or environmental impact is regulated, but its product market is unregulated. We show that when the firm's unregulated output market has some imperfection and when output marginal production costs are not independent of safety or abatement inputs, the use of performance standards is generally not optimal.

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Authors and Affiliations

  1. Department of Finance and Business Economics, School of Business, University of Southern California, 90089-1421, Los Angeles, CA

    Anthony M. Marino

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  1. Anthony M. Marino
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Additional information

The author thanks his colleagues S. Dasgupta, R. Eastin, T. Gilligan, J. Matsusaka, N. McCarty, and M. Zupan for helpful discussions. Benefit was also derived from an anonymous referee and seminar participants at the University of Southern California and the University of Gothenburg. Generous research support was provided by the School of Business General Research Fund.

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Marino, A.M. Are safety and environmental performance standards optimal regulatory instruments?. J Regul Econ 8, 167–179 (1995). https://doi.org/10.1007/BF01072588

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  • DOI: https://doi.org/10.1007/BF01072588

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