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The Cost Effectiveness of Environmental Policy Instruments in the Presence of Imperfect Compliance

Author

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  • Sandra Rousseau
  • Stef Proost

Abstract

We aim to integrate information, monitoring and enforcement costs into the choice of environmental policy instruments. We use a static partial equilibrium framework to study different combinations of regulatory instruments (taxes, standards…) and enforcement instruments (criminal fine, administrative fine…). The firms’ compliance decisions depend on the instrument combination selected by the government. The model is used to compare the welfare effects of different instrument combinations for the textile industry in Flanders. We find that administrative, implementation, enforcement and monitoring costs are important to decide on the necessity of an environmental policy. Moreover, we show that emission taxes are not necessarily the most cost-effective instrument. This result holds even if we include industry heterogeneity. The decision of whether to pursue an environmental policy or not depends crucially on the formulation of an appropriate monitoring and enforcement policy.

Suggested Citation

  • Sandra Rousseau & Stef Proost, 2002. "The Cost Effectiveness of Environmental Policy Instruments in the Presence of Imperfect Compliance," Working Papers of Department of Economics, Leuven ces0204, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces0204
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    Keywords

    K32 Environmental Law; K42 Illegal behaviour and enforcement of law; Q28 Government policy;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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