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Costly Enforcement of Voluntary Environmental Agreements with Industries

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  • David M. McEvoy

    ()
    (Department of Economics, Appalachian State University)

  • John K. Stranlund

    ()
    (Department of Resource Economics, University of Massachusetts Amherst)

Abstract

Although the theoretical literature on the performance of voluntary approaches to environmental protection has progressed quite far in the last decade, no one has rigorously addressed the obvious point that even voluntary emissions control policies must be enforced. This paper examines the consequences of the need for costly enforcement of voluntary environmental agreements with industries on the ability of these agreements to meet regulatory objectives, the levels of industry participation with these agreements, and the relative efficiency of voluntary and regulatory approaches. We find that enforcement costs that are borne by the members of a voluntary emissions control agreement limit the circumstances under which an agreement can form in place of an emissions tax. However, if an agreement does form, member-financed enforcement induces greater participation than if compliance with the agreement could be enforced without cost to its members. Moreover, a voluntary emission control agreement with an industry can be a more efficient way to achieve an environmental quality objective than an emission tax, but only if: (1) the members of an agreement bear the costs of enforcing compliance with the agreement; (2) there exists member-financed agreements that reach the government’s environmental quality target while leaving the members of the agreement at least as well off as they would be under an emissions tax, and (3) the enforcer of the agreement has a significantly better monitoring technology or a higher sanction available to it than the government.

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File URL: http://courses.umass.edu/resec/workingpapers/documents/ResEcWorkingPaper2007-11.pdf
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Bibliographic Info

Paper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2007-11.

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Length: 42 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:dre:wpaper:2007-11

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Web page: http://www.umass.edu/resec/
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Keywords: Voluntary agreements; self-enforcing agreements; emissions tax; enforcement;

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  1. Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
  2. Anna Alberini & Kathleen Segerson, 2002. "Assessing Voluntary Programs to Improve Environmental Quality," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 157-184, June.
  3. 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.
  4. Karine Nyborg, 2000. "Voluntary Agreements and Non-Verifiable Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(2), pages 125-144, October.
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  7. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
  8. Keith Brouhle & Charles Griffiths & Ann Wolverton, 2004. "The Use of Voluntary Approaches for Environmental Policymaking in the U.S," NCEE Working Paper Series 200405, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised May 2004.
  9. John W. Maxwell & Thomas P Lyon & Steven C.. Hackett, 1995. "Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism," University of Chicago - George G. Stigler Center for Study of Economy and State 122, Chicago - Center for Study of Economy and State.
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  11. 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.
  12. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
  13. Na Li Dawson & Kathleen Segerson, 2003. "Voluntary Agreements with Industries: Participation Incentives with Industry-wide Targets," Working papers 2004-06, University of Connecticut, Department of Economics.
  14. Klaus Conrad, 2001. "Voluntary Environmental Agreements vs. Emission Taxes in Strategic Trade Models," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(4), pages 361-381, August.
  15. Kolstad, Charles D., 2007. "Systematic uncertainty in self-enforcing international environmental agreements," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 68-79, January.
  16. Cremer, Helmuth & Gahvari, Firouz, 2002. "Imperfect observability of emissions and second-best emission and output taxes," Journal of Public Economics, Elsevier, vol. 85(3), pages 385-407, September.
  17. Khanna, Madhu & Damon, Lisa A., 1999. "EPA's Voluntary 33/50 Program: Impact on Toxic Releases and Economic Performance of Firms," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 1-25, January.
  18. Harford, Jon D., 1987. "Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 293-303, September.
  19. Lyon, Thomas P. & Maxwell, John W., 2003. "Self-regulation, taxation and public voluntary environmental agreements," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1453-1486, August.
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