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Voluntary Pollution Abatement and Regulation

Published online by Cambridge University Press:  15 September 2016

Michael S. Delgado  and
Neha Khanna
Michael S. Delgado*
Affiliation:
Department of Agricultural Economics at Purdue University
Neha Khanna
Affiliation:
Department of Economics at Binghamton University
*
Correspondence: Department of Agricultural Economics ▪ Purdue University ▪ West Lafayette, IN 47907–2056 ▪ Phone 765.494.4211 ▪ Email delgado2@purdue.edu.
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Abstract

We consider private provision of an environmental public good and the link between voluntary pollution-abatement markets and the optimal level of mandatory environmental regulation. We show that voluntary abatement markets react to the level of mandatory abatement imposed and that an optimal regulatory policy must account for that reaction. We consider several assumptions about consumer behavior and find that the voluntary market's reaction to regulation depends on the motivating behavior of consumers. Whether the optimal level of mandatory abatement is higher than the level provided by traditional settings depends on the direction and magnitude of the voluntary market's reaction to changes in mandatory abatement.

Keywords

consumer demandenvironmental regulationoptimal regulationpublic goodsvoluntary abatement
Type
Research Article
Information
Agricultural and Resource Economics Review , Volume 44 , Issue 1 , April 2015 , pp. 1 - 20
Copyright
Copyright © 2015 Northeastern Agricultural and Resource Economics Association 

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