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Do Market-Based Incentives Lower the Cost of Compliance?

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  • Allgulin, Magnus

    (Dept. of Economics, Stockholm School of Economics)

Abstract

This paper analyzes policies for regulating polluting firms under imperfect monitoring. The main finding is that a certain emission target is always more costly to enforce if there exists a market for emission permits than if there is none. The intuition is that a market restricts the regulatory agency to imposing incentive schemes which are linear in firms' emission levels, and these are less powerful than the best non-linear incentive schemes. Another result is that monitoring and monetary incentives are complementary policy instruments.

Suggested Citation

  • Allgulin, Magnus, 1999. "Do Market-Based Incentives Lower the Cost of Compliance?," SSE/EFI Working Paper Series in Economics and Finance 342, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0342
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    More about this item

    Keywords

    Monitoring; quota; market; emission permits;
    All these keywords.

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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