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Optimal environmental regulation based on more than just emissions

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Author Info
Arun Malik ()
Abstract

I develop a principal-agent model of environmental regulation in which the regulator can acquire two costly signals of the firm’s abatement effort. Acquisition of the second signal is conditioned on the observed value of the first, emissions signal. The optimal contract takes the form of an emissions standard when only the emissions signal is acquired, and a set of contingent emissions standards when both signals are acquired; the standards are coupled with uniform, maximal penalties for noncompliance. Acquisition of the second signal may be optimal when intermediate values of the first signal are observed but not when extreme values are observed. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11149-006-9007-7
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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 32 (2007)
Issue (Month): 1 (August)
Pages: 1-16
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Handle: RePEc:kap:regeco:v:32:y:2007:i:1:p:1-16

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

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Related research
Keywords: Environmental regulation; Enforcement; Optimal auditing; Q58; L51; K42;

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  8. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
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  9. Demougin, Dominique & Fluet, Claude, 2006. "Preponderance of evidence," European Economic Review, Elsevier, vol. 50(4), pages 963-976, May. [Downloadable!] (restricted)
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  10. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October. [Downloadable!] (restricted)
  11. Heyes, Anthony G, 1998. "Making Things Stick: Enforcement and Compliance," Oxford Review of Economic Policy, Oxford University Press, vol. 14(4), pages 50-63, Winter.
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  13. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March. [Downloadable!] (restricted)
  14. Sinclair-Desgagne, Bernard, 1994. "The First-Order Approach to Multi-signal Principal-Agent Problems," Econometrica, Econometric Society, vol. 62(2), pages 459-66, March. [Downloadable!] (restricted)
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  17. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
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