The relative efficiency of environmental policy instruments in a second-best setting with costly monitoring and enforcement
In this paper we incorporate monitoring and enforcement aspects in the choice of environmental policy instruments in a general equilibrium framework. Goulder et al. (J.Pub.Econ., 1999) look into the choice of policy instruments in the presence of distortionary taxes. We extend this model by no longer assuming full compliance from firms. A violating firm is caught with a certain probability by the inspection agency. Once a violator is detected, he always has to pay a fine. With a positive, finite expected fine and a probability of detection smaller than unity, there will always be a certain proportion of noncompliance in the economy. We calculate the gross efficiency costs of different policy instruments (emission tax, output tax, tradable permits and technology mandate). We illustrate the model for different price instruments (emission tax, output tax and tradable permits). We find that the relative inefficiency of grandfathered tradable permits vis- à-vis emission taxes found in a second-best setting with perfect compliance, is strongly decreased with imperfect compliance.
|Date of creation:||Jan 2001|
|Contact details of provider:|| Postal: Naamsestraat 69, 3000 Leuven|
Phone: +32-(0)16-32 67 25
Fax: +32-(0)16-32 67 96
Web page: http://feb.kuleuven.be/Economics
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ete:etewps:ete0101. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (library EBIB)
If references are entirely missing, you can add them using this form.