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The choice of policy instruments to control pollution under costly enforcement and incomplete information

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Abstract

We analyze the cost of enforcing a system of firm specific emissions standards vis a vis a transferable emissions permit system in the context of complete and incomplete information. We also examine the optimality of a transferable emissions permit system when abatement costs and enforcement costs are considered. We show that under incomplete information, regulation based on each firm-specific emissions standards cannot be less costly than a transferable emissions permit system. In addition, we find that the distribution of emissions that minimize aggregate program costs differ from the distribution of emissions generated by a competitive transferable emissions permit system.

Suggested Citation

  • Carlos A. Chávez & Mauricio G. Villena & John K.Stranlund, 2009. "The choice of policy instruments to control pollution under costly enforcement and incomplete information," Journal of Applied Economics, Universidad del CEMA, vol. 12, pages 207-227, November.
  • Handle: RePEc:cem:jaecon:v:12:y:2009:n:2:p:207-227
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    Cited by:

    1. 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, vol. 38(3), pages 274-291, December.
    2. Marcelo Caffera & Carlos Chávez, 2011. "The Cost-Effective Choice of Policy Instruments to Cap Aggregate Emissions with Costly Enforcement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(4), pages 531-557, December.
    3. Villegas, Clara & Coria, Jessica, 2009. "Taxes, Permits, and the Adoptation of Abatement Technology under Imperfect Compliance," Discussion Papers dp-09-20-efd, Resources For the Future.
    4. Rohling, Moritz & Ohndorf, Markus, 2012. "Prices vs. Quantities with fiscal cushioning," Resource and Energy Economics, Elsevier, vol. 34(2), pages 169-187.

    More about this item

    Keywords

    environmental policy; cost-effectiveness; enforcement costs; incomplete information;

    JEL classification:

    • 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
    • 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

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