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To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning

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  • Carmen Arguedas

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Abstract

In this paper, we characterize optimal regulatory policies composed of pollution standards, probabilities of inspection and fines for non-compliance, in a context where both monitoring and sanctioning are socially costly, and penalties may include gravity and non-gravity components at the regulator's discretion. The optimal policy entails compliance with the standards as long as a quite intuitive condition is met. Non-compliant policies may include standards even below the pollution levels that minimize the sum of abatement costs and external damages. Interestingly, the appropriate structure of penalties under non-compliance is highly progressive, while the best possible shape of the fines under compliance is linear only if non-gravity sanctions are not allowed.

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 41 (2008)
Issue (Month): 2 (October)
Pages: 155-168

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Handle: RePEc:kap:enreec:v:41:y:2008:i:2:p:155-168

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: Standards; Monitoring; Convex fines; Non-compliance; Non-gravity sanctions; K32; K42; L51; Q28;

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References

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Citations

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Cited by:
  1. John K. Stranlund & Carlos A. Chavez & Mauricio G. Villena, 2007. "The Optimal Pricing of Pollution When Enforcement is Costly," Working Papers 2007-6, University of Massachusetts Amherst, Department of Resource Economics.
  2. Arguedas, Carmen & Rousseau, Sandra, 2009. "A note on the complementarity of uniform emission standards and monitoring strategies," Working Papers 2009/12, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  3. Marcelo Caffera & Carlos Chávez & Analia Ardente, 2013. "Does the structure of the fine matter?," Documentos de Trabajo/Working Papers 1305, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  4. John K. Stranlund & Carlos A. Chavez, 2011. "Who Should Bear the Administrative Costs of an Emissions Tax?," Working Papers 2011-3, University of Massachusetts Amherst, Department of Resource Economics.
  5. 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, vol. 50(4), pages 531-557, December.
  6. Arguedas, Carmen & Earnhart, Dietrich & Rousseau, Sandra, 2013. "Effluent Limits, Ambient Quality, and Monitoring," Working Papers in Economic Theory 2013/08, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  7. John K. Stranlund, 2010. "Should We Impose Emissions Taxes That Firms Evade?," Working Papers 2010-4, University of Massachusetts Amherst, Department of Resource Economics.
  8. Arguedas, Carmen, 2010. "Pollution Standards, Technology Investment and Fines for Non-Compliance," Working Papers in Economic Theory 2010/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  9. Restiani, Phillia & Betz, Regina, 2010. "A Theoretical Model of Optimal Compliance Decisions under Different Penalty Designs in Emissions Trading Markets," Research Reports 107585, Australian National University, Environmental Economics Research Hub.
  10. Marcelo Caffera & Carlos chavez, 2012. "Complementarity of inspections and permits as leverages for capping emissions: experimental evidence," Documentos de Trabajo/Working Papers 1207, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  11. Stranlund, John K. & Moffitt, L. Joe, 2014. "Enforcement and price controls in emissions trading," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 20-38.

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