When the United States started passing comprehensive environmental laws in the late 1960s and early 1970s,

a typical law specified to companies how much pollution their smokestacks or drainpipes could emit and

imposed penalties if companies exceeded the limit. Other laws required that companies install certain

equipment—for example, on automobile tailpipes or on smokestacks—to reduce pollution. These types of laws,

which specify allowable quantities of pollution and which also may detail which pollution-control technologies

companies must use, fall under the category of command-and-control regulation. In effect, command-and-

control regulation requires that firms increase their costs by installing anti-pollution equipment. Thus, firms

are required to account for the social costs of pollution in deciding how much output to produce.

Command-and-control regulation has been highly successful in protecting and cleaning up the U.S.
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