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The optimal pricing of pollution when enforcement is costly

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  • Stranlund, John K.
  • Chávez, Carlos A.
  • Villena, Mauricio G.

Abstract

We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms' abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators' actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms' abatement costs or monitoring costs.

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Bibliographic Info

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

Volume (Year): 58 (2009)
Issue (Month): 2 (September)
Pages: 183-191

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Handle: RePEc:eee:jeeman:v:58:y:2009:i:2:p:183-191

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

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Keywords: Compliance Enforcement Emissions taxes Monitoring Asymmetric information Uncertainty;

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References

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  4. Keeler, Andrew G., 1991. "Noncompliant firms in transferable discharge permit markets: Some extensions," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 21(2), pages 180-189, September.
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  6. Carmen Arguedas, 2008. "To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 41(2), pages 155-168, October.
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  25. Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, Springer, vol. 18(2), pages 113-31, September.
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Citations

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Cited by:
  1. Min Chen & Konstantinos Serfes, 2012. "Minimum quality standard regulation under imperfect quality observability," Journal of Regulatory Economics, Springer, Springer, vol. 41(2), pages 269-291, April.
  2. Marcelo Caffera & Carlos Chávez, 2011. "The Cost-Effective Choice of Policy Instruments to Cap Aggregate Emissions with Costly Enforcement," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 50(4), pages 531-557, December.
  3. David M. McEvoy & John K. Stranlund, 2007. "Costly Enforcement of Voluntary Environmental Agreements with Industries," Working Papers, Department of Economics, Appalachian State University 07-15, Department of Economics, Appalachian State University.
  4. John Stranlund & Carlos Chávez, 2013. "Who should bear the administrative costs of an emissions tax?," Journal of Regulatory Economics, Springer, Springer, vol. 44(1), pages 53-79, August.
  5. David McEvoy & John Stranlund, 2010. "Costly Enforcement of Voluntary Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 47(1), pages 45-63, September.
  6. Villegas, Clara & Coria, Jessica, 2009. "Taxes, Permits, and the Adoptation of Abatement Technology under Imperfect Compliance," Discussion Papers, Resources For the Future dp-09-20-efd, Resources For the Future.
  7. John K. Stranlund, 2010. "Should We Impose Emissions Taxes That Firms Evade?," Working Papers, University of Massachusetts Amherst, Department of Resource Economics 2010-4, University of Massachusetts Amherst, Department of Resource Economics.
  8. Carlos A. Chavez & John K. Stranlund, 2008. "A Note on Emissions Taxes and Incomplete Information," Working Papers, University of Massachusetts Amherst, Department of Resource Economics 2008-5, University of Massachusetts Amherst, Department of Resource Economics.
  9. Stranlund, John K. & Moffitt, L. Joe, 2014. "Enforcement and price controls in emissions trading," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 67(1), pages 20-38.
  10. Clara Villegas-Palacio & Jessica Coria, 2010. "On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits," Journal of Regulatory Economics, Springer, Springer, vol. 38(3), pages 274-291, December.

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