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Optimal Enforcement Policy and Firms' Emissions and Compliance with Environmental Taxes

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Author Info
Inés Macho-Stadler ()
David Pérez-Castrillo ()

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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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Publisher Info
Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 612.04.

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Length: 26
Date of creation: 27 Apr 2004
Date of revision:
Handle: RePEc:aub:autbar:612.04

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Related research
Keywords: Environmental taxes; optimal audit policy.;

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Find related papers by JEL classification:
K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June. [Downloadable!] (restricted)
  2. Louis Kaplow & Steven Shavell, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," NBER Working Papers 3822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. A. Mitchell Polinsky & Steven Shavell, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March. [Downloadable!] (restricted)
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  4. Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu & Wang, Hua, 2001. "Inspections, pollution prices, and environmental performance: evidence from China," Ecological Economics, Elsevier, vol. 36(3), pages 487-498, March. [Downloadable!] (restricted)
  5. Franckx, Laurent, 2002. "The Use of Ambient Inspections in Environmental Monitoring and Enforcement When the Inspection Agency Cannot Commit Itself to Announced Inspection Probabilities," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 71-92, January. [Downloadable!] (restricted)
  6. Bontems, Philippe & Bourgeon, Jean-Marc, 2005. "Optimal environmental taxation and enforcement policy," European Economic Review, Elsevier, vol. 49(2), pages 409-435, February. [Downloadable!] (restricted)
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  7. Heyes, Anthony, 2002. "A Theory of Filtered Enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 34-46, January. [Downloadable!] (restricted)
  8. Agnar Sandmo, 2002. "Efficient Environmental Policy with Imperfect Compliance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(1), pages 85-103, September. [Downloadable!] (restricted)
  9. Innes, Robert, 1999. "Remediation and self-reporting in optimal law enforcement," Journal of Public Economics, Elsevier, vol. 72(3), pages 379-393, June. [Downloadable!] (restricted)
  10. Devon Garvie & Andrew Keeler, 1993. "Incomplete Enforcement with Endogenous Regulatory Choice," Working Papers 873, Queen's University, Department of Economics.
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  11. Epple, Dennis & Visscher, Michael, 1984. "Environmental Pollution: Modeling Occurrence, Detection, and Deterrence," Journal of Law & Economics, University of Chicago Press, vol. 27(1), pages 29-60, April.
  12. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1998. "Can capital markets create incentives for pollution control?," Ecological Economics, Elsevier, vol. 26(1), pages 31-41, July. [Downloadable!] (restricted)
  13. Swierzbinski Joseph E., 1994. "Guilty until Proven Innocent-Regulation with Costly and Limited Enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 127-146, September. [Downloadable!] (restricted)
  14. Macho-Stadler, Ines & Perez-Castrillo, J David, 2002. "Auditing with Signals," Economica, London School of Economics and Political Science, vol. 69(273), pages 1-20, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!]
    Other versions:
  3. John K. Stranlund, 2006. "Risk Aversion and Compliance in Markets for Pollution Control," Working Papers 2006-2, University of Massachusetts Amherst, Department of Resource Economics. [Downloadable!]
  4. Alfredo Burlando & Alberto Motta, 2007. "Self Reporting reduces corruption in law enforcement," "Marco Fanno" Working Papers 0063, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
    Other versions:
  5. Inés Macho Stadler & David Perez-Castrillo, 2005. "Optimal inspection policy and income-tax compliance," Hacienda Pública Española, IEF, vol. 173(2), pages 9-45, June. [Downloadable!]
  6. Inés Macho-Stadler, 2006. "Environmental Regulation: Choice of Instruments under Imperfect Compliance," UFAE and IAE Working Papers 673.06, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
    Other versions:
  7. Ines Macho-Stadler & David Perez-Castrillo, 2007. "Optimal Monitoring to Implement Clean Technologies when Pollution is Random," "Marco Fanno" Working Papers 0060, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
    Other versions:
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