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Pollution Standards, Technology Investment and Fines for Non-Compliance

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  • Arguedas, Carmen

    () (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

Abstract

In this paper, we analyze whether it is socially desirable that fines for exceeding pollution standards depend not only on the degree of non-compliance but also on the firm's level of investment in environmentally friendly technologies. For that purpose, we consider a partial equilibrium framework where a representative firm chooses the pollution level and the investment effort in response to an environmental policy composed of a pollution standard, an inspection probability and a fine for non-compliance. We find that the fine should not depend on the firm's investment effort if the optimal policy induces compliance. However, the fine should strictly decrease with investment effort under non-compliance and positive social costs of sanctioning. Interestingly, the optimal fine considers the relative importance of monitoring and sanctioning costs in the enforcement problem.

Suggested Citation

  • Arguedas, Carmen, 2010. "Pollution Standards, Technology Investment and Fines for Non-Compliance," Working Papers in Economic Theory 2010/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  • Handle: RePEc:uam:wpaper:201005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Voßwinkel, Jan & Birg, Laura, 2015. "Minimum Quality Standards and Non-Compliance," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112883, Verein für Socialpolitik / German Economic Association.
    2. Baumann Florian & Friehe Tim, 2016. "Competitive Pressure and Corporate Crime," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 647-687, April.
    3. Carmen Arguedas & Francisco Cabo & Guiomar Martín-Herrán, 2017. "Optimal Pollution Standards and Non-compliance in a Dynamic Framework," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 537-567, November.
    4. Sabine Aresin, 2015. "Monitoring Abatement in the Presence of an Import Quota on CERs," Working Papers tax-mpg-rps-2015-11, Max Planck Institute for Tax Law and Public Finance.
    5. Jessica Coria & Xiao-Bing Zhang, 2015. "State-Dependent Enforcement to Foster the Adoption of New Technologies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 359-381, October.
    6. repec:kap:regeco:v:51:y:2017:i:3:d:10.1007_s11149-017-9330-1 is not listed on IDEAS
    7. Coria, Jessica & Zhang, Xiao-Bing, 2015. "The Harrington Paradox Squared," Working Papers in Economics 608, University of Gothenburg, Department of Economics.

    More about this item

    Keywords

    pollution standards; costly inspections; environmentally friendly technologies; non-compliance; optimal fines.;

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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