Increasing regulation of polluters it is argued will have a negative impact. Is this true?

Question

Increasing regulation of polluters it is argued will have a negative impact. Is this true?

Answer 1

Yes - regulating polluters will cause them to expend higher costs, which might raise the costs of their products and/or the polluters profits. Higher product costs will also reduce consumer surplus and might reduce the demand for these products, which, in turn, could cause workers of the polluters to loose there jobs. So we potentially have:

- higher costs/lower corporate profits

- more expensive products

- fewer people working for the polluter

But regulation has benefits, too - a cleaner environment and, potentially, lower health risks for people and workers in the neighborhood. The economically interesting insight is not that regulation is costly - the interesting question is: how does society decide on the appropriate trade-off between costs and benefits of regulating polluters? What are the most efficient ways of making polluters internalize their external effects? (Taxes, tradable pollution rights, etc.?)