The efficient outcome of regulation is to have each source control emissions up to the point where the marginal costs of further controls exceed the marginal social benefits of greater pollution reductions. This definition is the easy part of policy design. The difficult part is designing policies that, when implemented in the real world, approximate efficient control behavior. In theory, a tax-based policy and a command-and-control quantity standard can both achieve the efficient outcome. 23 With knowledge of the costs and benefits of pollution control, a regulator can simply require firms to engage in the efficient.
