Environmental regulation: choice of instruments under imperfect compliance

• Autores: Inés Macho Stadler
• Localización: Spanish economic review, ISSN 1435-5469, Vol. 10, Nº 1, 2008, págs. 1-21
• Idioma: inglés
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• Resumen

  • Compliance is an important issue in environmental regulation. We discuss some of the key elements of the problem and analyze a situation where emissions are not random and firms are risk-neutral. We study the firm’s decision on emissions and compliance when the environmental regulation is based on standards and the enforcement agency audits the firm with a certain probability. We compare total emissions when environmental regulation is based on different instruments: standards, taxes, and tradable permits. We show that when compliance is an issue, environmental taxes are superior to the other instruments, and we analyze the (static) efficiency of the solution.