Abstract
The environmental regulation should accompany with the long-term effect that under the regulation regulated firms have incentive to develop and introduce new technologies to decrease their environmental load. While many research have been conducted to analyze efficiency and effectiveness of short-term function of environmental regulation-how to induce compliance to required environmental standards, very little have been done for the long-term effects-how to induce incentive of regulated agents to develop and introduce new environmental technologies. This study analyzes the incentive of regulated firms to develop new environmental technology under the environmental regulations, and clarify how the regulator or government can induce the long-term incentive of the regulatees while maintaining their short-term compliance.
