The Korean Economic Review
Optimal Design of a Politically Feasible Environmental Regulation
Jongmin Yu (Hongik University) and Seokjong Ryu (hanghai University of Finance and Economics)Year 2018Vol. 34No. 1
Abstract
This paper discusses the optimal environmental regulation model that considers thepolitical support of the regulated agents. We suggest a hybrid emission control policy pair,which combines a price (penalty) and a quantity control (emissions cap), and is efficientfrom the regulator’s perspective. Regulated companies choose one of the lowest-cost policyoptions within the pool of efficient hybrid policy pairs, and the regulator also prefers themost popular policy option with the smallest political resistance from the industry. Thistheoretic analysis provides an opportunity for policymakers to design acceptable regulationstructures.