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Burden of Inspection Costs and Effectiveness of Environmental Regulations

Author

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  • Keisaku Higashida

    (School of Economics, Kwansei Gakuin University)

Abstract

Using a laboratory experimental approach, this study examines the effect of institutional changes in the responsibility for paying inspection costs for environmental regulations on the behavior of polluters and authorities. In particular, we compare two schemes: one is that authorities always bear the inspection cost and the other is that polluters bear the cost in a given situation. We find that polluters comply with regulations more frequently in the latter than the former scheme, while the inspection behavior of authorities does not change significantly. Moreover, the cost-bearing change in the scheme induces income redistribution between polluters and authorities (pollutees or society). In addition, we introduce uncertainty about the occurrence of environmental damage, and find that the frequency of inspection is greater in the latter than the former scheme. Because both inspection and compliance costs increase, total payoff may decrease by the partial shift of responsibility for inspection cost from authorities to polluters.

Suggested Citation

  • Keisaku Higashida, 2019. "Burden of Inspection Costs and Effectiveness of Environmental Regulations," Discussion Paper Series 189, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:189
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    References listed on IDEAS

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    More about this item

    Keywords

    Compliance; environmental regulation; inspection cost; laboratory experiment;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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