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To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning

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Author Info
Arguedas, Carmen () (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

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Abstract

In this paper, we characterize optimal regulatory policies composed of pollution standards, probabilities of inspection and fines for non-compliance, in a context where both monitoring and sanctioning are socially costly, and penalties may include gravity and non-gravity components at the regulator's discretion. The optimal policy entails compliance with the standards as long as a quite intuitive condition is met. Non-compliant policies may include standards even below the pollution levels that minimize the sum of abatement costs and external damages. Interestingly, the appropriate structure of penalties under non-compliance is highly progressive, while the best possible shape of the fines under compliance is linear only if non-gravity sanctions are not allowed.

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Publisher Info
Paper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2007/13.

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Length: 21 pages
Date of creation: Sep 2007
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Handle: RePEc:uam:wpaper:200713

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Related research
Keywords: standards monitoring convex fines non-compliance non-gravity sanctions

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Find related papers by JEL classification:
K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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  16. Heyes, Anthony G., 1996. "Cutting environmental penalties to protect the environment," Journal of Public Economics, Elsevier, vol. 60(2), pages 251-265, May. [Downloadable!] (restricted)
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