519. A model of benchmarking regulation: revisiting the efficiency of environmental standards

Joschka Gerigk, Ian A. MacKenzie, and Markus Ohndorf,  School of Economics Discussion Paper No. 519 May 2014, School of Economics, The University of Queensland, and Institute for Environmental Decisions, ETH Zürich.

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Abstract

The conventional economic argument favors the use of market-based instruments over ‘command-and-control’ regulation. This viewpoint, however, is often limited in the description and characteristics of the latter; namely, environmental standards are often portrayed as lacking structured abatement incentives. Yet contemporary forms of command-and-control regulation, such as standards stipulated via benchmarking, have the potential to be efficient. We provide a first formal analysis of environmental standards based on performance benchmarks. We show, in a variety of contexts, that standards can provide efficient incentives to improve environmental performance.