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Do Market-Based Incentives Lower the Cost of Compliance?

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Author Info
Allgulin, Magnus (Dept. of Economics, Stockholm School of Economics)
Abstract

This paper analyzes policies for regulating polluting firms under imperfect monitoring. The main finding is that a certain emission target is always more costly to enforce if there exists a market for emission permits than if there is none. The intuition is that a market restricts the regulatory agency to imposing incentive schemes which are linear in firms' emission levels, and these are less powerful than the best non-linear incentive schemes. Another result is that monitoring and monetary incentives are complementary policy instruments.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 342.

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Length: 23 pages
Date of creation: Oct 1999
Date of revision:
Handle: RePEc:hhs:hastef:0342

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Related research
Keywords: Monitoring; quota; market; emission permits;

Find related papers by JEL classification:
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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