ABSTRACT
This paper develops an approach for incorporating regulation into the theory of production, distribution, and trade, using environmental regulation as an example. Four major conclusions emerge in the course of the analysis.
1. Production process regulation is equivalent in its effect on other cooperating factors to neutral technical regress (i.e. negative progress).
2. Specific unambiguous income redistribution consequences follow from such regulation. If commodity prices are held constant, the factor used relatively intensively in the non-regulated industry will gain absolutely in terms of both goods.
3. Unilateral or uncoordinated regulation destroys the link between uniform world commodity prices and identical factor proportions/factors prices across trading countries or regions.
4. If any factor of production is freely mobile across frontiers, the least differential regulation as between countries will entirely drive out the regulated industry from the more to the less regulated economy.
