The use of warnings when intended and measured emissions differ
This article studies the effects of informal, non-monetary sanctions, such as warnings, which are often used as an enforcement instrument by environmental inspection agencies. In cases of uncertainty with respect to the measured emissions due to measurement errors or accidental violations, some firms are unjustly penalised. As warnings provide a buffer period in which the firm is informed about the violation without any monetary consequences, it will be theoretically shown that warnings can help to reduce the welfare cost of such type II-errors and reduce the overdeterrence of low-cost firms - albeit at the cost of underdeterring medium-cost firms.
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24/2003, Oslo University, Department of Economics.
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