POLLUTION, PUBLIC DISCLOSURE, AND FIRM BEHAVIOR

This paper looks at whether a government regulator should publicly ann ounce the amounts of pollution emitted by individual firms and plants. Disclosure may be important if there is incomplete information about firm costs, since pollution levels may be used by the regulated firm a s a signal of costs to rival firms. We compare the signaling games und er public disclosure and no disclosure. Welfare is likely reduced by d isclosure, but if the regulator can adjust the stringency of the relev ant pollution regulations, then the loss in welfare can be smaller. Th e implications of these results for pollution permits markets are disc ussed.