Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement
We propose an enforcement strategy to achieve complete compliance in a transferable emissions permit system when firms are required to provide reports of their own emissions. Like the literature on self-reporting in the enforcement of standards, we find that self-reporting can conserve monitoring costs, but for a different reason. In addition, we show that targeted monitoring--the practice of monitoring some firms more closely than others--is not necessary in a competitive permit system. Furthermore, tying penalties to the equilibrium permit price can stabilize the monitoring effort necessary to maintain full compliance in the face of permit price fluctuations. Copyright 2000 by Kluwer Academic Publishers
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