Regulation of performance standards versus equipment specification with asymmetric information

This paper compares the regulation of safety performance standards with the regulation of specific safety equipment. It is well known that if information is perfect, it is more efficient to regulate performance than to regulate specific equipment. The former mechanism fosters cost minimization, while the latter does not. I assume that the firm has more accurate knowledge of its safety production technology than does the regulator and show that under reasonable sufficiency conditions the regulation of equipment specifications is more efficient than the regulation of safety performance standards. I also extend these results to the case of environmental pollution regulation.