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Enviromental standards and costly monitoring

Listed author(s):
  • Arguedas, Carmen

In this paper, we investigate the features of an optimal regulatory policy composed of pollution standards and probabilities of inspection to verify firms' behavior, where fines for noncompliance depend on the degree of violation. We find that the optimal policy can entail either compliance or noncompliance with the enviromental standards, the latter being more plausible when monitoring costs are high and, surprisingly, when fines for noncompliance are also high. In the event the planner has perfect information about the firns, we find that, whe the optimal policy entails noncompliance, the optimal standard is always equal to zero, suggesting the superiority of probabilistic environmental taxes versus positive standards. However this is no longer true when the planner has incomplete information about the regulated agents.

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File URL: http://e-archivo.uc3m.es/bitstream/handle/10016/6099/we990201.PDF?sequence=1
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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number 6099.

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Date of creation: Jan 1999
Handle: RePEc:cte:werepe:6099
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
  2. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 133-148, April.
  3. Macho-Stadler, Ines & Perez-Castrillo, J David, 1997. "Optimal Auditing with Heterogeneous Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 951-968, November.
  4. Polinsky, A Mitchell & Shavell, Steven, 1991. "A Note on Optimal Fines When Wealth Varies among Individuals," American Economic Review, American Economic Association, vol. 81(3), pages 618-621, June.
  5. Shavell, Steven, 1992. "A note on marginal deterrence," International Review of Law and Economics, Elsevier, vol. 12(3), pages 345-355, September.
  6. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
  7. Carol Adaire Jones, 1989. "Standard setting with incomplete enforcement revisited," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(1), pages 72-87.
  8. 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.
  9. Reinganum, Jennifer F & Wilde, Louis L, 1986. "Equilibrium Verification and Reporting Policies in a Model of Tax Compliance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 739-760, October.
  10. Amacher, Gregory S. & Malik, Arun S., 1996. "Bargaining in Environmental Regulation and the Ideal Regulator," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 233-253, March.
  11. Ignacio Ortuño Ortín, 1992. "Inspection in models of adverse selection," Working Papers. Serie AD 1992-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
  13. Kaplow, Louis, 1990. "Optimal Deterrence, Uninformed Individuals, and Acquiring Information about Whether Acts Are Subject to Sanctions," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 93-128, Spring.
  14. 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.
  15. Kambhu, John, 1989. "Regulatory Standards, Noncompliance and Enforcement," Journal of Regulatory Economics, Springer, vol. 1(2), pages 103-114, June.
  16. John Kambhu, 1989. "Regulatory standards, noncompliance and enforcement," Research Paper 8902, Federal Reserve Bank of New York.
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