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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1193.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information 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
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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.:
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.
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Inés Macho-Stadler & David Pérez-Castrillo, 1999.
"Auditing with Signals,"
CIE Discussion Papers
1999-08, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
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.)