Polluters and Abaters

To comply with laws, regulations and social demands, polluting firms increasingly purchase the needed means from specialized suppliers. This paper an- alyzes this relatively recent phenomenon. We show how environmental regulation, the size of the output market, the elasticity of demand for abatement goods and services, and the fact that in-house and outsourced abatement expenses are substitutes or complements can influence a polluter's make-or-buy decision. Specific features of abatement outsourcing are highlighted, qualifications and refinements of the theory of vertical integration are then proposed, and some consequences for environmental policy are briefly discussed.