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Pollution standards, costly monitoring and fines

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Author Info
Arguedas, Carmen (Tilburg University, Center for Economic Research)

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

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

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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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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. Carmen Arguedas & Hamid Hamoudi, 2004. "Controlling Pollution with Relaxed Regulations," Journal of Regulatory Economics, Springer, vol. 26(1), pages 85-104, 07. [Downloadable!]
  2. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law & Economics, University of Chicago Press, vol. 35(1), pages 133-48, April.
    Other versions:
  3. Livernois, John & McKenna, C.J., 1996. "Truth or Consequences? Enforcing Pollution Standards," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
    Other versions:
  4. 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. [Downloadable!] (restricted)
    Other versions:
  5. Arguedas, Carmen, 2005. "Bargaining in environmental regulation revisited," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 422-433, September. [Downloadable!] (restricted)
  6. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Heyes, Anthony G., 1996. "Cutting environmental penalties to protect the environment," Journal of Public Economics, Elsevier, vol. 60(2), pages 251-265, May. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Arun S. Malik, 1990. "Avoidance, Screening and Optimum Enforcement," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 341-353, Autumn. [Downloadable!] (restricted)
  11. Heyes, Anthony, 2000. "Implementing Environmental Regulation: Enforcement and Compliance," Journal of Regulatory Economics, Springer, vol. 17(2), pages 107-29, March. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May. [Downloadable!] (restricted)
  14. Grieson, Ronald E. & Singh, Nirvikar, 1990. "Regulating externalities through testing," Journal of Public Economics, Elsevier, vol. 41(3), pages 369-387, April. [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. Arguedas, Carmen, 2005. "Optimal environmental standards under asymmetric information and imperfect enforcement," Discussion Paper 10, Tilburg University, Center for Economic Research. [Downloadable!]
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