Pollution Standards, Technology Investment and Fines for Non-Compliance
AbstractIn this paper, we analyze whether it is socially desirable that fines for exceeding pollution standards depend not only on the degree of non-compliance but also on the firm's level of investment in environmentally friendly technologies. For that purpose, we consider a partial equilibrium framework where a representative firm chooses the pollution level and the investment effort in response to an environmental policy composed of a pollution standard, an inspection probability and a fine for non-compliance. We find that the fine should not depend on the firm's investment effort if the optimal policy induces compliance. However, the fine should strictly decrease with investment effort under non-compliance and positive social costs of sanctioning. Interestingly, the optimal fine considers the relative importance of monitoring and sanctioning costs in the enforcement problem.
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Bibliographic InfoPaper 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 2010/05.
Length: 21 pages
Date of creation: Apr 2010
Date of revision:
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Web page: http://www.uam.es/departamentos/economicas/analecon/default.html
More information through EDIRC
pollution standards; costly inspections; environmentally friendly technologies; non-compliance; optimal fines.;
Other versions of this item:
- Carmen Arguedas, 2013. "Pollution standards, technology investment and fines for non-compliance," Journal of Regulatory Economics, Springer, vol. 44(2), pages 156-176, October.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
- NEP-ENE-2010-05-02 (Energy Economics)
- NEP-ENV-2010-05-02 (Environmental Economics)
- NEP-LAW-2010-05-02 (Law & Economics)
- NEP-REG-2010-05-02 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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