Pollution Control Instruments in the Presence of an Informal Sector
AbstractWe examines the challenges faced by the regulator in managing pollution when there is a linkage between a formal and an informal industrial sector across the stages of production. The formal sector is more productive than the informal sector and the latter saves cost by evading pollution regulation due to incomplete monitoring. This creates a natural tendency for the more polluting processes to be concentrated in the informal sector. We show the unintended effects of the standard Pigouvian tax (emission fee), which might lead to further deterioration by encouraging the shift of stages in favour of the informal sector. Instead, we propose a second-best hybrid instrument, comprised of a tax on polluting input and a subsidy on proper disposal of residual waste.
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Date of creation: Dec 2010
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Emissions tax; informal sector; pollution control; vertical production.;
Other versions of this item:
- Sudeshna Chattopadhyay & Sarmila Banerjee & Katrin Millock, 2010. "Pollution control instruments in the presence of an informal sector," Documents de travail du Centre d'Economie de la Sorbonne 10103, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-ENE-2011-02-05 (Energy Economics)
- NEP-ENV-2011-02-05 (Environmental Economics)
- NEP-REG-2011-02-05 (Regulation)
- NEP-RES-2011-02-05 (Resource Economics)
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- Ceyhun Elgin & Oguz Oztunali, 2013. "Environmental Kuznets Curve for the Informal Sector of Turkey (1950-2009)," Working Papers 2013/05, Bogazici University, Department of Economics.
- Ceyhun Elgin & Ummad Mazhar, 2012. "Environmental Regulation, Pollution and the Informal Economy," Working Papers 2012/07, Bogazici University, Department of Economics.
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