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

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  • Sandra Rousseau

    ()
    (K.U.Leuven, C.E.S., Energy, Transport and Environment)

  • Stef Proost

    ()
    (K.U.Leuven, C.E.S., Energy, Transport and Environment)

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.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0204.

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Length: 26 pages
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:ete:etewps:ete0204

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Keywords: Environmental Law; Illegal behaviour and enforcement of law; Government policy;

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