Extending the cost function: A simple method of modeling environmental regulation

The paper shows that a variety of different scenarios in environmental economics can be modeled by one abstract concept, an extended cost function, which takes into account a firm's technological and regulatory constraints. It satisfies the usual properties of a cost function and reasonable properties with respect to the regulatory parameter. An extended cost function represents a simple unified approach which does not depend on the specific form of regulation and the way emissions are modeled.