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

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  • Arguedas, Carmen

    (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

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.

Suggested Citation

  • Arguedas, Carmen, 2007. "To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning," Working Papers in Economic Theory 2007/13, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    • Handle: RePEc:uam:wpaper:200713
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    More about this item

    Keywords

    standards; monitoring; convex fines; non-compliance; non-gravity sanctions;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, 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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