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Optimal Fines for Environmental Noncompliance Under a Decentralized Enforcement Policy

Author

Listed:
  • Laurent Franckx

    (K.U.Leuven, C.E.S., Energy, Transport and Environment
    Royal Military Academy)

Abstract

We consider the determination of the optimal fine for noncompliance by a legislator who anticipates the inspection game between an autonomous inspection agency and polluting firms. This agency can make the inspection of individual firms contingent on ambient pollution. The agency's autonomy implies that it cannot commit itself to announced inspection probabilities. If the legislator centralizes the decision to monitor ambient pollution, the optimal fine is infinitely large. The legislator can then forbid ambient inspections to avoid overenforcement. If the legislator decentralizes the decision to monitor ambient pollution, overenforcement can be avoided by choosing a finite fine.

Suggested Citation

  • Laurent Franckx, 2001. "Optimal Fines for Environmental Noncompliance Under a Decentralized Enforcement Policy," Energy, Transport and Environment Working Papers Series ete0108, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0108
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    File URL: http://feb.kuleuven.be/drc/Economics/misc/ete_workingpapers/ete-wp01-08.pdf
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    More about this item

    Keywords

    decentralized environmental enforcement; optimal penalties;

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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