Lagged regulation of energy industries

Working paper

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.

Authors: Heyes, A

• Publication status: Published
• Peer review status: Reviewed (other)
• Publisher: Oxford Institute for Energy Studies
• Series: OIES paper
• Publication date: 1995-01-01
• Edition: Publisher's version
• Paper number: EV21
• ISBN: 0948061898
• Language: English
• Keywords: clean technologies; cost-benefit; environmental regulation; technical change; cost efficiency; OIES; regulation; pollution; model; capture