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Environmental Policy Instruments: Technology Adoption Incentives with Imperfect Compliance

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Author Info

  • Arguedas, Carmen

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

  • Camacho, Eva

    (Universidad Jaume I de Castellón)

  • Zofío, José Luis

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

Abstract

In this paper, we study the incentives to adopt advanced abatement technologies in the presence of imperfect compliance. Surprisingly, incentives to adopt advanced abatement technologies remain intact under emission taxes and pollution abatement subsidies when compared to the perfect compliance scenario. However, under emission standards imperfect compliance increases firms’ incentives to invest under certain assumptions, whereas under an emission permit mechanism investment incentives decrease only if widespread non-compliance induces a (sufficient) reduction in the permit price. Our results are valid for fairly general characteristics of the monitoring and enforcement strategies commonly found in both, theoretical and empirical applications.

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Bibliographic 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 2009/03.

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Length: 17 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:uam:wpaper:200903

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Keywords: environmental policy; technology adoption; monitoring; non-compliance;

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References

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  1. Shavell, Steven, 1992. "A note on marginal deterrence," International Review of Law and Economics, Elsevier, Elsevier, vol. 12(3), pages 345-355, September.
  2. Innes, Robert & Bial, Joseph J, 2002. "Inducing Innovation in the Environmental Technology of Oligopolistic Firms," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 50(3), pages 265-87, September.
  3. Downing, Paul B. & Watson, William Jr., 1974. "The economics of enforcing air pollution controls," Journal of Environmental Economics and Management, Elsevier, vol. 1(3), pages 219-236, November.
  4. Harrington, Winston, 2003. "Regulating Industrial Water Pollution in the United States," Discussion Papers, Resources For the Future dp-03-03, Resources For the Future.
  5. Villegas, Clara & Coria, Jessica, 2009. "Taxes, Permits and the Adoption of Abatement Technology under Imperfect Compliance," Working Papers in Economics, University of Gothenburg, Department of Economics 368, University of Gothenburg, Department of Economics.
  6. Oljaca, Neda & Keeler, Andrew G & Dorfman, Jeffrey, 1998. "Penalty Functions for Environmental Violations: Evidence from Water Quality Enforcement," Journal of Regulatory Economics, Springer, Springer, vol. 14(3), pages 255-64, November.
  7. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
  8. Montero, Juan-Pablo & Sanchez, Jose Miguel & Katz, Ricardo, 2002. "A Market-Based Environmental Policy Experiment in Chile," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 45(1), pages 267-87, April.
  9. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  10. Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November.
  11. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
  12. Montero, Juan-Pablo, 2002. "Prices versus quantities with incomplete enforcement," Journal of Public Economics, Elsevier, Elsevier, vol. 85(3), pages 435-454, September.
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Cited by:
  1. Baumann, Florian & Friehe, Tim, 2013. "Design standards and technology adoption: Welfare effects of increasing environmental fines when the number of firms is endogenous," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 106, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Clara Villegas-Palacio & Jessica Coria, 2010. "On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits," Journal of Regulatory Economics, Springer, Springer, vol. 38(3), pages 274-291, December.
  3. Arguedas, Carmen, 2010. "Pollution Standards, Technology Investment and Fines for Non-Compliance," Working Papers in Economic Theory, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) 2010/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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