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Controlling Pollution with Relaxed Regulations

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  • Carmen Arguedas

    ()

  • Hamid Hamoudi

    ()

Abstract

We investigate the features of optimal environmental policies composed of pollution standards and costly inspection processes, where fines for exceeding the standards depend both on the degree of transgression and the environmental technology that the firm uses to reduce the social impact of its polluting activity. We show that the main characteristics of these policies depend crucially on when the firm selects that technology with respect to the timing of the policy announcement. In fact, the firm has incentives to over-invest in green technologies when the policy is announced afterwards; and to under-invest in them if the environmental authority plays first. Surprisingly, we find that both the firm and the regulator prefer that the firm invests in technology before the policy is announced, even when this implies that expected penalties for noncompliance might be zero.

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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 26 (2004)
Issue (Month): 1 (07)
Pages: 85-104

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Handle: RePEc:kap:regeco:v:26:y:2004:i:1:p:85-104

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Web page: http://www.springerlink.com/link.asp?id=100298

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Cited by:
  1. John K. Stranlund, 2006. "The Regulatory Choice of Noncompliance in Emissions Trading Programs," Working Papers 2006-7, University of Massachusetts Amherst, Department of Resource Economics.
  2. Carmen Arguedas, 2013. "Pollution standards, technology investment and fines for non-compliance," Journal of Regulatory Economics, Springer, vol. 44(2), pages 156-176, October.
  3. Arguedas, Carmen, 2007. "To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning," Working Papers in Economic Theory 2007/13, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  4. Arun Malik, 2007. "Optimal environmental regulation based on more than just emissions," Journal of Regulatory Economics, Springer, vol. 32(1), pages 1-16, August.
  5. Chongwoo Choe & Charles E. Hyde, 2007. "Multinational Transfer Pricing, Tax Arbitrage and the Arm's Length Principle," The Economic Record, The Economic Society of Australia, vol. 83(263), pages 398-404, December.
  6. Arguedas, C., 2005. "Pollution Standards, Costly Monitoring and Fines," Discussion Paper 2005-9, Tilburg University, Center for Economic Research.
  7. Arguedas, C., 2005. "Optimal Environmental Standards under Asymmetric Information and Imperfect Enforcement," Discussion Paper 2005-10, Tilburg University, Center for Economic Research.
  8. André Barreira da Silva Rocha, 2013. "An Evolutionary Game for the Issues of Social Investment, Environmental Compliance and Consumer Boycott," Discussion Papers in Economics 13/17, Department of Economics, University of Leicester.
  9. Dijkstra, Bouwe R., 2007. "An investment contest to influence environmental policy," Resource and Energy Economics, Elsevier, vol. 29(4), pages 300-324, November.

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