2016-2 Environmental Economics
Unit 8. Command-and-Control Strategies:
The Case of Standards
Prof. Min-jung, Kim Department of Economics
Wonkwang University
This presentation slides are based on the Environmental Economics: An
Introduction (The Mcgraw-Hill) 6th Edition by Barry Field and Martha k Field, which is used as a textbook for this class.
1- 2 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, All Rights Reserved.
Command and control approach : political authorities mandate the behavior in law, then
use whatever enforcement machinery that is necessary to get people to obey the law for
socially desirable situation.
1- 3 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, All Rights Reserved.
Types of standards
• Ambient standards : never exceed level for some pollutant in the ambient environment
• Emission standards : never exceed levels
applied directly to the quantities of emissions coming from pollution source.
• Technology standards : the technologies,
techniques, or practices that potential polluters
must adopt.
MDu > MDr Eu < Er
Single uniform standard cannot be efficient in the two regions.
Thus, we should set different standards in the two regions.
• MAC1 > MAC2
• MAC1 : marginal abatement cost before technology improvement
• MAC2 : marginal abatement cost after technology improvement
• Suppose that the firm is now faced with having to meet emission standards of e2 tons/year.
• With MAC1, total annual cost of compliance =a+b
• If R&D is successful, with MAC2, total annual cost of compliance =b
• a/year = incentive for R&D
• Suppose the authorities change the standard of e3 tons/year.
• Firm’s compliance cost is (b+c)/per year
• (a-c)/year < a/year : perverse incentives
