Environmental and Resource Economics

, Volume 38, Issue 1, pp 89–98 | Cite as

Firm behaviour under pollution ratio standards with non-compliance

  • Aaron Hatcher
Original Paper


This paper compares a firm’s short run optimal production and abatement rules under emission level standards and standards expressed in terms of emissions per unit of output (ratio standards). The models allow for non-compliance with standards, with expected penalties dependant on either level or relative violations of the standard in question. It is shown that ratio arguments make a difference to the optimal decision rules derived for a profit-maximising firm. For example, for a given level of emissions the firm both produces more, and abates more, under a ratio standard, so that ratio and level standards cannot be used interchangeably to achieve the same combination of emissions and output. The implications for the efficiency of pollution control are briefly discussed.


Pollution Emissions Abatement Level standards Ratio standards Compliance 

JEL classification

D21 L51 Q52 



I would like to thank two anonymous reviewers whose challenging comments and helpful suggestions aided considerably the preparation of the final version of the paper.


  1. Beavis B, Walker M (1983) Random wastes, imperfect monitoring and environmental quality. J Public Econ 21(3):377–387CrossRefGoogle Scholar
  2. Downing PB, Watson WD (1974) The economics of enforcing air pollution controls. J Environ Econ Manage 1(3):219–236CrossRefGoogle Scholar
  3. Ebert U (1998) Relative standards: a positive and normative analysis. J Econ 67(1):17–38Google Scholar
  4. van Egteren H, Weber M (1996) Marketable permits, market power and cheating. J Environ Econ Manage 30(2):161–173CrossRefGoogle Scholar
  5. Harford JD (1978) Firm behavior under imperfectly enforceable pollution standards. J Environ Econ Manage 5(1):26–43CrossRefGoogle Scholar
  6. Harford JD (1984) Relatively efficient pollution standards under perfect competition. Public Finan Q 12(2):183–195CrossRefGoogle Scholar
  7. Harford JD, Karp G (1983) The effects and efficiencies of different pollution standards. East Econ J 9(2):79–89Google Scholar
  8. Harford JD, Ogura S (1983) Pollution taxes and standards: a continuum of quasi-optimal solutions. J Environ Econ Manage 10(1):1–17CrossRefGoogle Scholar
  9. Hatcher A (2005) Non-compliance and the quota price in an ITQ fishery. J Environ Econ Manage 49(3):427–436CrossRefGoogle Scholar
  10. Helfand G (1991) Standards versus standards: the effects of different pollution restrictions. Am Econ Rev 81(3):622–634Google Scholar
  11. Hochman E, Zilberman D (1978) Examination of environmental policies using production and pollution microparameter distributions. Econometrica 46(4):739–760CrossRefGoogle Scholar
  12. Keeler AG (1991) Noncompliant firms in transferable discharge permit markets: some extensions. J Environ Econ Manage 21(2):180–189CrossRefGoogle Scholar
  13. McKitrick R (2001) The design of regulations expressed as ratios or percentage quotas. J Regul Econ 19(3):295–305CrossRefGoogle Scholar
  14. Malik A (1990) Markets for pollution control when firms are noncompliant. J Environ Econ Manage 18(2):97–106CrossRefGoogle Scholar
  15. Malik A (2002) Further results on permit markets with market power and cheating. J Environ Econ Manage 44(3):371–390CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of PortsmouthPortsmouthUK

Personalised recommendations