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The optimal pricing of pollution when enforcement is costly

Listed author(s):
  • Stranlund, John K.
  • Chávez, Carlos A.
  • Villena, Mauricio G.

We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms' abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators' actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms' abatement costs or monitoring costs.

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File URL: http://www.sciencedirect.com/science/article/pii/S0095-0696(09)00016-3
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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 58 (2009)
Issue (Month): 2 (September)
Pages: 183-191

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Handle: RePEc:eee:jeeman:v:58:y:2009:i:2:p:183-191
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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  16. Carmen Arguedas, 2008. "To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 41(2), pages 155-168, October.
  17. Agnar Sandmo, 2002. "Efficient Environmental Policy with Imperfect Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 85-103, September.
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  21. Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, vol. 18(2), pages 113-131, September.
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