This paper analyzes the effect of command-and-control regulation on firms’ incentives for pollution abatement, market structure, and social welfare. We consider a regulation under which firms are not allowed to produce if they were found in noncompliance with the preset emissions standard during the government’s imperfect inspection. In the case of the ex ante monopoly, a loose standard coupled with an intensive inspection effectively induces perfect compliance. In the case of the ex ante duopoly, the intensified inspection directly creates market entry barriers, but it also induces firms to increase abatement investments for better environmental compliance, which indirectly promotes market competition. Moreover, a firm invests more in pollution abatement if it is initially cleaner or more production-efficient than its rival, or if it has fewer potential rival. We also find that regulatory tightening may harm social welfare by reducing the probability of entry, and social welfare may be higher under monopoly than under duopoly when government inspection is sufficiently intensive.

中文翻译：

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指挥与控制法规，减少污染的激励措施和市场结构

本文分析了命令和控制法规对企业减少污染，市场结构和社会福利的激励措施的影响。我们考虑一项法规，即在政府不完善的检查过程中，如果发现企业不符合预设的排放标准，则不得生产企业。在事前垄断的情况下，宽松的标准加上严格的检查有效地诱导了完美的合规性。在事前垄断，强化检查直接造成了市场准入壁垒，但同时也促使企业增加减排投资以提高环境合规性，从而间接促进了市场竞争。此外，如果一家公司最初比竞争对手更清洁或生产效率更高，或者潜在竞争对手更少，那么它在减少污染方面的投资就会更多。我们还发现，加强监管可能会降低进入的可能性，从而损害社会福利，并且在政府检查足够密集的情况下，垄断下的社会福利可能要高于双头垄断下的社会福利。