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The cost effectiveness of environmental policy instruments in the presence of imperfect compliance

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  • Rousseau, Sandra
  • Proost, Stef

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 in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/238237.

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Date of creation: 2002
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Handle: RePEc:ner:leuven:urn:hdl:123456789/238237

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Web page: http://www.kuleuven.be

Related research

Keywords: K32 Environmental Law; K42 Illegal behaviour and enforcement of law; Q28 Government policy;

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References

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  1. Malik, Arun S, 1992. "Enforcement Costs and the Choice of Policy Instruments for Controlling Pollution," Economic Inquiry, Western Economic Association International, vol. 30(4), pages 714-21, October.
  2. Stef Proost & Kurt Van Dender & C. Courcelle & B. De Borger & J. Peirson & D. Sharp & R. Vickerman & E. Gibbons & M. O'Mahony & Q. Heaney & J. Van den Bergh & E. Verhoef, 2001. "How large is the gap between present and efficient transport prices in Europe?," Energy, Transport and Environment Working Papers Series ete0120, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  3. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
  4. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
  5. Oates, Wallace E & Portney, Paul R & McGartland, Albert M, 1989. "The Net Benefits of Incentive-Based Regulation: A Case Study of Environmental Standard Setting," American Economic Review, American Economic Association, vol. 79(5), pages 1233-42, December.
  6. Rousseau, Sandra & Proost, Stef, 2001. "The relative efficiency of environmental policy instruments in a second-best setting with costly monitoring and enforcements," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/238236, Katholieke Universiteit Leuven.
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Cited by:
  1. Rousseau, Sandra, 2003. "Using emission standards under incomplete compliance," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/174856, Katholieke Universiteit Leuven.

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