Lagged regulation of energy industries
In a variety of contexts regulatory agencies are legally obliged to use a cost-benefit rule (or some variant there of) to revise environmental standards to reflect improvements m pollution-control techniques, but have considerable discretion over the timing of such revision. How should the agency us...
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| Format: | Working paper |
| Language: | English |
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Oxford Institute for Energy Studies
1995
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| Summary: | In a variety of contexts regulatory agencies are legally obliged to use a cost-benefit rule (or some variant there of) to revise environmental standards to reflect improvements m pollution-control techniques, but have considerable discretion over the timing of such revision. How should the agency use this discretion? In a simple model of standard-setting under endogenous technical change we show that an agency can use implementation lags strategically to effect the supply of new ‘clean’ technologies. Longer lags tend to encourage more intense R&D; effort by the regulated industry itself whilst discouraging parallel effort by external developers. Optimal implementation lags are characterized. The analysis calls into question the conventional view that ‘foot-dragging’ by agencies is necessarily evidence of incompetence and/or regulatory capture and will, in general, be an efficient strategic response by the executive agency to the need to manipulate dynamic incentives. |
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