AbstractThis paper develops an optimal control model for the firm's decision‐making concerning pollution control spending, employment and investment. The model explicitly considers the impact of adjustment costs of changing the level of the pollution stock and involves three state variables and two control variables. Necessary conditions are derived by the maximum principle. The results include an optimal employment‐investment‐pollution abatement programme, an optimal pollution control decision rule, the equilibrium optimal pollution control and spending plan, and the equilibrium employment‐investment d