We study optimal policies composed of pollution standards, probabilities of inspection and fines dependant on the degree of noncompliance with the standards, in a context where regulated firms own private information. In contrast with previous literature, we show that optimal policies, being either pooling or separating, can imply violations to strictly positive standards. This results crucially depends on the monitoring costs, the types of firms and the regulator's degree of uncertainty.
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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number
10.
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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 L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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