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Bankruptcy Risk and Imperfectly Enforced Emissions Taxes

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Author Info
John K. Stranlund () (Department of Resource Economics, University of Massachusetts Amherst)
Wei Zhang () (Department of Resource Economics, University of Massachusetts Amherst)

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Abstract

Under favorable but reasonable conditions, an imperfectly enforced emissions tax produces the efficient allocation of individual emissions control; aggregate emissions are independent of whether enforcement of the tax is sufficient to induce the full compliance of firms, and differences in individual violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy—the allocation of emissions control is inefficient, imperfect enforcement causes higher aggregate emissions, and financially insecure firms choose higher violations.

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File URL: http://courses.umass.edu/resec/workingpapers/documents/ResEcWorkingPaper2008-3.pdf
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Publisher Info
Paper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2008-3.

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Length: 23 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:dre:wpaper:2008-3

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Web page: http://www.umass.edu/resec/
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Related research
Keywords: Bankruptcy; Emissions Taxes; Limited Liability;

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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  1. 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. [Downloadable!] (restricted)
  2. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October. [Downloadable!] (restricted)
  5. Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Yossef Spiegel & Daniel F. Spulber, 1994. "The Capital Structure of a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 424-440, Autumn. [Downloadable!] (restricted)
  8. Damania, Richard & Bulte, Erwin H., 2006. "Renewable resource regulation and uncertain prices: The role of financial structure and bankruptcy," Resource and Energy Economics, Elsevier, vol. 28(1), pages 41-53, January. [Downloadable!] (restricted)
  9. Damania, R., 2000. "Financial structure and the effectiveness of pollution control in an oligopolistic industry," Resource and Energy Economics, Elsevier, vol. 22(1), pages 21-36, January. [Downloadable!] (restricted)
  10. Murphy, James J. & Stranlund, John K., 2007. "A laboratory investigation of compliance behavior under tradable emissions rights: Implications for targeted enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 196-212, March. [Downloadable!] (restricted)
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