Intertemporal Effects of Environmental Mandates |
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Authors: | RICHARD D FARMER |
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Institution: | (1) Natural Resources and Commerce Division, Congressional Budget Office, United States Congress, Room 495, Ford House Office Building, 20515 Washington, DC, USA |
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Abstract: | Environmental mandates can impose large costs on the businesses that must comply with them. Understanding the effects of those
costs on production decisions may require a dynamic framework if environmental damages (and the costs of complying with mandates)
depend on cumulative production or the passage of time. This paper focuses on the time dimension of general categories of
fixed and variable costs arising from different types of mandates. The paper develops an optimal control model to predict
how such costs may jointly affect current production rates, plant closure dates, and cumulative production. Theoretical results,
derived from the comparative statics of the system of equations describing the solution to that model, identify circumstances
in which the policy goals of greater production and greater environmental protection may not allways be at odds.
Statements in this paper do not reflect the views or positions of the Congressional Budget Office |
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Keywords: | environmental management firm behavior intertemporal choice |
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