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Pollution Control Instruments in the Presence of an Informal Sector

Author

Listed:
  • Sudeshna Chattopadhyay

    (Bidhannagar College - EB-2 Sector - I)

  • Sarmila Banerjee

    (University of Calcutta)

  • Katrin Millock

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We examines the challenges faced by the regulator in managing pollution when there is a linkage between a formal and an informal industrial sector across the stages of production. The formal sector is more productive than the informal sector and the latter saves cost by evading pollution regulation due to incomplete monitoring. This creates a natural tendency for the more polluting processes to be concentrated in the informal sector. We show the unintended effects of the standard Pigouvian tax (emission fee), which might lead to further deterioration by encouraging the shift of stages in favour of the informal sector. Instead, we propose a second-best hybrid instrument, comprised of a tax on polluting input and a subsidy on proper disposal of residual waste.

Suggested Citation

  • Sudeshna Chattopadhyay & Sarmila Banerjee & Katrin Millock, 2010. "Pollution Control Instruments in the Presence of an Informal Sector," Post-Print halshs-00560558, HAL.
  • Handle: RePEc:hal:journl:halshs-00560558
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00560558
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    References listed on IDEAS

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    Cited by:

    1. Ceyhun Elgin & Oğuz Öztunalı, 2014. "Environmental Kuznets Curve for the Informal Sector of Turkey (1950-2009)," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(4), pages 471-485, September.

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