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Effectiveness of environmental regulations under imperfect enforcement and the firm's avoidance behavior

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  • Chung-Huang Huang
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    Abstract

    This paper explicitly defines enforcement quality and develops a model by incorporating enforcement quality and the firm's avoidance behavior. The results indicate that the effectiveness of environmental regulations is likely to depend upon the level of enforcement quality, as well as upon the nature of the firm's avoidance behavior. Policy instruments may become incompatible under certain circumstances. Enforcement quality should be properly targeted to enhance functional harmonization between instruments. The condition under which emission tax is more effective under imperfect enforcement than under complete enforcement is also identified. Copyright Kluwer Academic Publishers 1996

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    File URL: http://hdl.handle.net/10.1007/BF00357363
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    Article provided by Springer & European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

    Volume (Year): 8 (1996)
    Issue (Month): 2 (September)
    Pages: 183-204

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    Handle: RePEc:kap:enreec:v:8:y:1996:i:2:p:183-204
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    Keywords: enforcement quality; environmental regulation; penalty; avoidance behavior;

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    1. Jones, Carol Adaire & Scotchmer, Suzanne, 1990. "The social cost of uniform regulatory standards in a hierarchical government," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 61-72, July.
    2. Zuckerman, Stephen & Hadley, Jack & Iezzoni, Lisa, 1994. "Measuring hospital efficiency with frontier cost functions," Journal of Health Economics, Elsevier, vol. 13(3), pages 255-280, October.
    3. A. Mitchell Polinsky & Steven Shavell, 1981. "Pigouvian Taxation with Administrative Costs," NBER Working Papers 0742, National Bureau of Economic Research, Inc.
    4. Kambhu, John, 1990. "Direct controls and incentives systems of regulation," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S72-S85, March.
    5. Schmidt, Peter & Knox Lovell, C. A., 1979. "Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers," Journal of Econometrics, Elsevier, vol. 9(3), pages 343-366, February.
    6. Xepapadeas, A. P., 1991. "Environmental policy under imperfect information: Incentives and moral hazard," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 113-126, March.
    7. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
    8. Dewees, Donald N, 1983. "Instrument Choice in Environmental Policy," Economic Inquiry, Western Economic Association International, vol. 21(1), pages 53-71, January.
    9. Jeremy Greenwood & R. Preston McAfee, 1991. "Externalities and Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 103-121.
    10. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
    11. Linder, Stephen H. & McBride, Mark E., 1984. "Enforcement costs and regulatory reform: The agency and firm response," Journal of Environmental Economics and Management, Elsevier, vol. 11(4), pages 327-346, December.
    12. Kopp, Raymond J. & Diewert, W. Erwin, 1982. "The decomposition of frontier cost function deviations into measures of technical and allocative efficiency," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 319-331, August.
    13. Shaffer, Sherrill, 1990. "Regulatory Compliance with Nonlinear Penalties," Journal of Regulatory Economics, Springer, vol. 2(1), pages 99-103, March.
    14. Kenneth L. Wertz, 1974. "Short-run Effects of an Increased Effluent Charge in a Competitive Market," Canadian Journal of Economics, Canadian Economics Association, vol. 7(4), pages 676-82, November.
    15. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, November.
    16. 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.
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