Polluterswhominimize the
first line of Eq. (13)would choose abatement lower than x⁎ if ZN1, i.e., if
compensation falls short of environmental harm. If the divergence
between compensation and harm turns out to be sufficiently strong,
then theminimized level of the first linewill be less than the minimized
level of the second line of Eq. (13). If compensation exceeds harm,
polluters will stick to the abatement standard and will accordingly also
invest the first-best level. Similarly, polluter behavior will be in
accordance with the social optimum if the level of compensation is
weakly below harm