Collective penalties and inducement of self-reporting
AbstractRandom accidents can be contained by collective penalties. These penalties are not likely to be enforced but rather induce self-reporting that enhances welfare due to early containment. Self-reporting under collective penalties increases overall welfare, but may increase expected environmental cost. Even when regulation is constrained by an upper limit on the acceptable collective penalty, the threat of collective penalties can induce an incentive-compatible mutual insurance scheme under which a side-payment is made to the agent that self-reports an accident. This self-reporting mechanism is welfare-improving, but first-best outcomes can only be obtained when the collective penalty is unconstrained, or when an honor system applies. In cases when there is a new externality that requires fast response (avian flu), collective penalties can compliment or substitute for monitoring.
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Date of creation: May 2006
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Ambient tax; collective penalties; enforcement; self-reporting.;
Other versions of this item:
- Katrin Millock & David Zilberman, 2006. "Collective penalities and inducement of self-reporting," Cahiers de la Maison des Sciences Economiques v06048a, Université Panthéon-Sorbonne (Paris 1).
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- 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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