| The level of externality regulation applied to each unit of capital in a regulated industry is often determined by its entry date, with recent vintages typically facing more stringent regulation. Neoclassical capital theory suggests that the adoption of a regulatory structure incorporating a bias against new capital will retard investment in new capital and prolong the economic lifetime of old capital. For this reason, tightening regulation for new capital alone may actually increase the aggregate externality level. In part one, a model adapted from growth theory is used to study differentiated regulation. Differentiated regulation is found to be particularly unsuitable for the regulation of industries characterized by slow demand growth, slow physical depreciation, slow technical progress, and limited substitutability in the production process. Since many sectors in which differentiated regulation is commonly used have these properties, changes in regulatory design are apparently in order.;Since the relationship between the stringency of new source standards and the emissions level is not necessarily monotonic, it is possible for one policy to dominate another along both cost and benefit dimensions simultaneously. I explore the use of modified dominance-type criteria to rank six simulated policies. Standard cost-benefit calculations are also carried out, along with sensitivity analyses. The costs of the 1981 increment of regulation in the current program are found to exceed its benefits by a wide margin even when assumptions favorable to it are used in the computations.;The second part of the dissertation evaluates the current U.S. automotive emissions control program, a differentiated regulatory program, and several alternatives. The 1981 regulatory increment is shown to have increased aggregate hydrocarbon and carbon monoxide emissions in 1981-1985 above the level that would have prevailed had the less stringent 1980 standards been kept in force. Beyond 1985 emissions fall, but by less than forecast using a model that fails investment decisions endogenously. Indeed, the wide disparity in emissions rates among cars presently in the vehicle fleet suggests that strategies that accelerate, rather than retard, replacement of high-emission-rate vehicles are attractive alternatives to the present policy. |
