Welfare cost of pollution control

A model of joint-production of a conventional output and of pollutants is presented, within which continuous substitution between polluting fuels and nonpolluting inputs on the one hand and pollution control inputs on the other is allowed for. Using the steel industry as a case study, the welfare cost under an efficient policy to reduce particulate emissions is evaluated and compared with that under alternative inefficient policies. The results suggest that substantial cost savings can be made by following the “optimal” policy.