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Optimal enforcement policy and firms' emissions and compliance with environmental taxes

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  • Macho-Stadler, Ines
  • Perez-Castrillo, David

Abstract

In a market where firms with different characteristics decide upon both the level of emissions and their reports, we study the optimal audit policy for an enforcement agency whose objective is to minimize the level of emissions. We show that it is optimal to devote the resources primarily to the easiest-to-monitor firms and to those firms that value pollution the less. Moreover, unless the budget for monitoring is very large, there are always firms that do not comply with the environmental objective and others that do comply; but all of them evade the environmental taxes.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 51 (2006)
Issue (Month): 1 (January)
Pages: 110-131

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Handle: RePEc:eee:jeeman:v:51:y:2006:i:1:p:110-131

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Web page: http://www.elsevier.com/locate/inca/622870

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  10. Macho-Stadler, Ines & Perez-Castrillo, J David, 1997. "Optimal Auditing with Heterogeneous Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 951-68, November.
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  18. Macho-Stadler, Ines & Perez-Castrillo, J David, 2002. "Auditing with Signals," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 69(273), pages 1-20, February.
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