Environmental Regulation And The Cost Of Doing Business Changes In Trends In Research

In the process of industrialization, economic development was accompanied by environmental pollution and ecological damage. Especially in recent decades, environmental problems have been concerned and valued in worldwide. To reduce environmental damage, governments have introduced environmental regulation, and directed or controled the activities of enterprises. Also, there are some companies taking voluntary-based approach. These environmental measures work different on the costs and competitiveness of enterprises.Environmental problems are mainly due to the negative externalities of production behavior, and social costs can not be compensated for the loss. Without environmental regulation, output of the optimal decision-making of enterprise is too large, but behavior of pollution control is less than normal and pollution is too much. When markets fail, environmental regulation is necessary. Environmental regulations can achive internalization of external costs and elimination of negative externalities. There are three ways of environmental regulation, the command type, the market-based type and voluntary-based type. They work different in the guiding role of reaction behavior of enterprise, and they also have different effects on the contents of business costs. The command type doesn't have enough roles on innovation, business costs will increase obviously, and the additional costs are relatively fixed. Market-based type will stimulate innovation, so it will generate cost-down factors when leads to higher costs directly. Voluntary-based type not only has the role of innovation, and help enterprises to gain first-mover advantage.Environmental costs are incremental costs of regulation, and the full costs of enterprise need taking environmental costs and cost-down factors into account. The cost-down factors include technological innovation, management innovation and first-mover advantage. The command type leads business costs rising significantly in most cases. The market-based type has a dual role to costs changing. When the efficiency of pollution control is high enough and material utilization efficiency and labor utilization efficiency can be greatly improved, bussiness costs show a trend of lower. Sometimes, the voluntary-based type is better. Bussiness costs show a trend of lower in a long time, and both of the economic and environmental performances are satisfactory.