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Pollution Standards, Costly Monitoring and Fines

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  • Arguedas, C.

    (Tilburg University, Center for Economic Research)

Abstract

We investigate the features of optimal regulatory policies composed of pollution standards and probabilities of inspection, where fines for non-compliance depend not only on the degree of violation but alson on nongravity factors.We show that optimal policies can induce either compliance or noncompliance with the standards, the latter being more plausible when monitoring costs are large and, surprisingly, when gravity-based fines are large.Also, both tghe convexity of the sanctions and the level of the non-gravity-based penalties play a key role as to whether optimal policies induce noncompliance.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-9.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:20059

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  1. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 133-48, April.
  2. Lucian Arye Bebchuk & Louis Kaplow, 1992. "Optimal Sanctions When Individuals are Imperfectly Informed About the Probability of Apprehension," NBER Working Papers 4079, National Bureau of Economic Research, Inc.
  3. McKenna, C.J. & Livernois, J., 1996. "Truth or Consequences? Enforcing Pollution Standards," Working Papers 1996-7, University of Guelph, Department of Economics.
  4. Arguedas, Carmen, 2005. "Bargaining in environmental regulation revisited," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 422-433, September.
  5. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
  6. Pierre Pestieau & Uri M. Possen & Steven M. Slutsky, 2004. "Jointly Optimal Taxes and Enforcement Policies in Response to Tax Evasion," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(2), pages 337-374, 05.
  7. Arun S. Malik, 1990. "Avoidance, Screening and Optimum Enforcement," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 341-353, Autumn.
  8. Heyes, Anthony, 2000. "Implementing Environmental Regulation: Enforcement and Compliance," Journal of Regulatory Economics, Springer, vol. 17(2), pages 107-29, March.
  9. Carmen Arguedas & Hamid Hamoudi, 2004. "Controlling Pollution with Relaxed Regulations," Journal of Regulatory Economics, Springer, vol. 26(1), pages 85-104, 07.
  10. Amacher, Gregory S. & Malik, Arun S., 1996. "Bargaining in Environmental Regulation and the Ideal Regulator," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 233-253, March.
  11. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  12. Heyes, Anthony G., 1996. "Cutting environmental penalties to protect the environment," Journal of Public Economics, Elsevier, vol. 60(2), pages 251-265, May.
  13. Livernois, John & McKenna, C. J., 1999. "Truth or consequences: Enforcing pollution standards with self-reporting," Journal of Public Economics, Elsevier, vol. 71(3), pages 415-440, March.
  14. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  15. Grieson, Ronald E. & Singh, Nirvikar, 1990. "Regulating externalities through testing," Journal of Public Economics, Elsevier, vol. 41(3), pages 369-387, April.
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Cited by:
  1. Arguedas, C., 2005. "Optimal Environmental Standards under Asymmetric Information and Imperfect Enforcement," Discussion Paper 2005-10, Tilburg University, Center for Economic Research.
  2. Hsiao-Chi Chen & Shi-Miin Liu, 2007. "Dynamic Incentive Contracts in Multiple Penalty Systems with No-commitment to Tenure-track Auditing," Journal of Economics, Springer, vol. 90(3), pages 255-294, April.

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