We evaluate the effect of land use regulation on the value of land and on welfare. Our estimates are based on a decomposition of the effects of regulation into three components: an own-lot effect, which reflects the cost of regulatory constraints to the owner of a parcel; an external effect, which reflects the value of regulatory constraints on one's neighbors; a supply effect, which reflects the effect of regulated scarcity of developable land. Using this decomposition, we arrive at a novel strategy for estimating a plausibly causal effect of land use regulation on land value and welfare. This strategy exploits cross-border changes in development, prices, and regulation in regions near municipal borders. Our estimates suggest large negative effects of regulation on the value of land and welfare in these regions

The new economics of regulation is an application of the principal-agent methodology to the contractual relationship between regulators and regulated firms. After a critique of the traditional paradigms of regulation from the point of view of information economics a canonical model of regulation under asymmetric information is developed. A survey of the main results obtained in the new economics of regulation is then provided, in particular concerning the implementation of optimal contracts by a menu of linear contracts, the dichotomy between pricing and cost reimbursement rules, the auctioning of incentive contracts, the dynamics of contracting under limited commitment, and the hierarchical problems in regulation. Empirical implications are then discussed and avenues of further research are described in the conclusion

We consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator. The regulator's objective is to maximize a linear social welfare of the consumers' surplus and the firm's profit. In the optimal regulatory policy, prices and subsidies are designed as functions of the firm's cost report so that expected social welfare is maximized, subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs. We explicitly derive the optimal policy and analyze its properties. IN THEIR CLASSIC PAPERS Dupuit [2] and Hotelling [5] considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost. They demonstrated that the pricing policy that maximizes consumer well-being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost, so that a firm would be willing to provide the bridge. This first-best solution is based on a number of informational assumptions. First, the demand is assumed to be known to both the regulator and to the firm. While the assumption of complete information may be too strong, the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural. A second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm. This assumption is unlikely to be met in reality, since the firm would be expected to have better information about costs than would the regulator. As Weitzman has stated, An essential feature of the regulatory environment I am trying to describe is uncertainty about the exact specification of each firm's cost function. In most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels. Because they are yet removed from the production process, the regulators are likely to be vaguer still about a firm's cost function [12, p. 684]. As this observation suggests, it is natural to expect that a firm would have better information regarding its costs than would a regulator. The purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm. One strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm. In pursuing its own interests, which would then be to maximize the total social surplus, the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

I study regulation of noncompete employment contracts, assessing the trade‐off between restricting worker mobility and encouraging firm investment. I develop an on‐the‐job search model in which firms and workers sign dynamic wage contracts with noncompete clauses and firms invest in their workers' general human capital. Employers use noncompete clauses to enforce buyout payments when their workers depart, ultimately extracting rent from future employers. This rent extraction is socially excessive, and restrictions on these clauses can improve efficiency. The optimal regulation policy is characterized. In an application to the managerial labor market using a novel contract data set, I find the optimal policy to be quantitatively close to a ban

Policymakers and market intermediaries often use quality scores to alleviate asymmetric information about product quality. Scores affect the demand for quality and, in equilibrium, its supply. Equilibrium effects break the rule whereby more information is always better, and the optimal design of scores must account for them. In the context of Medicare Advantage, I find that consumers' information is limited, and quality is inefficiently low. A simple design alleviates these issues and increases total welfare by 3.7 monthly premiums. More than half of the gains stem from scores' effect on quality rather than information. Scores can outperform full‐information outcomes by regulating inefficient oligopolistic quality provision, and a binary certification of quality attains 98% of this welfare. Scores are informative even when coarse; firms' incentives are to produce quality at the scoring threshold, which consumers know. The primary design challenge of scores is to dictate thresholds and thus regulate quality

The typical cost analysis of an environmental regulation consists of an engineering estimate of the compliance costs. In industries where fixed costs are an important determinant of market structure, this static analysis ignores the dynamic effects of the regulation on entry, investment, and market power. I evaluate the welfare costs of the 1990 Amendments to the Clean Air Act on the U.S. Portland cement industry, accounting for these effects through a dynamic model of oligopoly in the tradition of Ericson and Pakes (1995). Using the two-step estimator of Bajari, Benkard, and Levin (2007), I recover the entire cost structure of the industry, including the distributions of sunk entry costs and capacity adjustment costs. My primary finding is that the Amendments have significantly increased the sunk cost of entry, leading to a loss of between $810M and $3.2B in product market surplus. A static analysis misses the welfare penalty on consumers, and obtains the wrong sign of the welfare effects on incumbent firms

We study firm responses to a large‐scale change in apprenticeship regulation in Colombia. The reform requires firms to train, setting apprentice quotas that vary discontinuously in firm size. We document strong heterogeneity in responses across sectors, where firms in sectors with high skill requirements tend to avoid training apprentices, while firms in low‐skill sectors seek apprentices. Guided by these reduced‐form findings, we structurally estimate firms' training costs. Especially in high‐skill sectors, many firms face large training costs, limiting their willingness to train apprentices. Yet, we find substantial overall benefits of expanding apprenticeship training, in particular when the supply of trained workers increases in general equilibrium. Finally, we show that counterfactual policies taking into account heterogeneity across sectors can deliver similar benefits from training while inducing less distortions in the firm‐size distribution and in the allocation of resources across sectors

High pollution persists in many developing countries despite strict environmental rules. We use a field experiment and a structural model to study how plant emission standards are enforced. In collaboration with an Indian environmental regulator, we experimentally doubled the rate of inspection for treatment plants and required that the extra inspections be assigned randomly. We find that treatment plants only slightly increased compliance. We hypothesize that this weak effect is due to poor targeting, since the random inspections in the treatment found fewer extreme violators than the regulator's own discretionary inspections. To unbundle the roles of extra inspections and the removal of discretion over what plants to target, we set out a model of environmental regulation where the regulator targets inspections, based on a signal of pollution, to maximize plant abatement. Using the experiment to identify key parameters of the model, we find that the regulator aggressively targets its discretionary inspections, to the degree that half of the plants receive fewer than one inspection per year, while plants expected to be the dirtiest may receive ten. Counterfactual simulations show that discretion in targeting helps enforcement: inspections that the regulator assigns cause three times more abatement than would the same number of randomly assigned inspections. Nonetheless, we find that the regulator's information on plant pollution is poor, and improvements in monitoring would reduce emissions

Weak environmental regulation has global consequences. When domestic regulation fails, the international community can target emitters with trade policy. I develop a dynamic empirical framework for evaluating trade policy as a substitute for domestic regulation, and I apply the framework to the market for palm oil, a major driver of deforestation and global CO 2 emissions. Relative to business as usual, a domestic production tax of 50% reduces CO 2 emissions by 7.4 Gt from 1988 to 2016, amounting to 0.26 Gt annually. Coordinated, committed import tariffs of similar magnitude reduce emissions by 5.4 Gt over the same period. The cost of these import tariffs is only $15 per ton of CO 2 , even accounting for compensating transfers that recognize welfare losses for producing countries. Without coordination and commitment, import tariffs have more limited effects. Alternative policies include domestic export taxes, which are fiscally appealing independent of emission concerns, and a carbon border adjustment mechanism, which encourages domestic regulation