markets for pollution control when firms are noncompliant the problem of noncompliance and enforcement in transferable discharge permit tdp markets has not received much attention this paper examines the consequences of noncompliance for a tdp market given fairly general assumptions about the characteristics of the enforcement policy in place the analysis reveals that when firms are noncompliant tdp markets retain their efficiency property only under some fairly stringent conditions the effect of noncompliance on the equilibrium permit price raises some important questions about the ability of a tdp market to achieve and remain in equilibrium when firms are noncompliant

pre emptive corruption hold up and repeated interactions this paper analyses repeated interactions between a firm and an inspector who monitors regulatory compliance the firm may offer a bribe to pre empt the inspection corruption is unfeasible in the one shot game because of inspector hold up in an infinitely repeated game we characterize the set of bribes that can be sustained as equilibrium paths using the trigger strategy in this model the most likely bribe givers are not the firms that benefit the most from the illegal behaviour furthermore strengthening anti corruption policies has ambiguous welfare effects because it improves compliance only among a subset of firms and increases monitoring effort

setting standards for credible compliance and law enforcement in this paper we examine the setting of optimal legal standards to simultaneously induce parties to invest in care and to motivate law enforcers to detect violators of the law the strategic interaction between care providers and law enforcers determines the degree of efficiency achieved by the standards our principal finding is that some divergence between the marginal benefits and marginal costs of providing care is required to control enforcement costs further the setting of standards may effectively substitute for the setting of fines when penalties for violation are fixed in particular maximal fines may be welfare reducing when standards are set optimally nous considerons dans cet article la determination en information incomplete de normes legales optimales pour a la fois inciter les citoyens a faire preuve de diligence prevention et motiver les agents de la paix a veiller au respect des lois l interaction strategique entre citoyens et agents de la paix determine l efficacite des normes choisies notre resultat principal est a l effet qu un ecart entre benefices marginaux et couts marginaux de la diligence est necessaire afin de reduire les couts d application des lois de plus les normes peuvent etre un substitut aux amendes lorsque les penalites pour infraction sont fixes des amendes maximales peuvent en particulier etre contre indiquees lorsque les normes sont optimalement determinees

individual transferable quota markets under illegal fishing the use of individual transferable quotas in fisheries has been considered an opportunity to achieve a given total allowable catch with a maximum social benefit one of the assumptions used in obtaining that result is that the system is in perfect compliance the presence of violations and the need for enforcement of tradable property rights systems in fisheries has not received much attention in the literature the incidents of non compliance however may affect the performance of transferable property rights based fisheries in unexplored ways in this paper we adapt previous literature on enforcing emissions trading programs to analyze a positive model of fisherman behavior that operates under a perfectly competitive individual transferable quota system while recognizing the opportunities for violations of quota holdings given incomplete enforcement considering a poorly enforced individual transferable quota system we are able to obtain a number of implications for the current and future equilibrium of the quota market the time paths of the fishery and the proper design of a policy rule on total allowable catch tac

tradeable permits missing markets and technology this paper examines the effects of missing markets heterogeneous pollutants and the pollution technology of firms on the efficacy of transferable pollution permits under the assumption of perfect competition in all markets we show that if firms can substitute among pollutants then setting the optimal number of permits for only one pollutant will not in general lead to an efficient outcome the degree of the inefficiency will depend on the information set available to the regulator and the substitutability among pollutants by firms when establishing transferable pollution rights regulators should therefore consider the technology of firms if firms discharge pollutants in the same fixed proportions then the regulator need only set a market for one of the pollutants to ensure an efficient outcome where firms can substitute among pollutants however establishing a market for only one pollutant provides an incentive for firms to substitute to unregulated ones this is an important policy issue as substitutability among pollutants within and across production processes may dampen the dynamic advantages of a tradeable permit policy

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

the good the bad and the regulator an experimental test of two conditional audit schemes conditional audit rules are designed to achieve regulatory compliance with fewer inspections than required by random auditing a regulator places individuals into audit pools that differ in probability of audit or severity of fine and species transition rules between pools future pool assignment is conditional on current audit results we conduct an experiment to compare two specific schemes harrington s past compliance targeting and friesen s optimal targeting against random auditing we find a production possibility frontier between compliance and minimizing inspections optimal targeting generates the lowest inspection rates as predicted but random auditing the highest compliance past compliance targeting is intermediate

environmental compliance by firms in the manufacturing sector in mexico abstract to date little empirical evidence exists to help regulators understand why some firms comply even when there is little financial incentive to do so and others continually violate environmental regulations this paper examines data on compliance with environmental regulations within the manufacturing sector in mexico the probability of complying depends among other factors on the kind of management practices of the firm and the level of environmental training some firms in the manufacturing sector over comply with regulations our results show that providing environmental training to employees in the firm increases the probability of over compliance local community has a positive impact on over compliance however the magnitude of its impact is not as strong as is often suggested in the literature

on optimal audit mechanisms for environmental taxes abstract we consider the auditing problem of an environmental enforcement agency with fixed audit resources how to decide which firms to audit after having observed the firms taxable emissions reports the goal of the agency is to implement the socially efficient emissions level the audit mechanism is the agency s sole choice variable while other variables such as the tax rate on emissions and the fine for non compliance are determined by other governmental actors the fines and budget of the agency are constrained in such a way that the common random audit mechanism fails to implement socially efficient emissions assuming perfect information among the firms we derive an optimal audit mechanism capable of implementing the socially efficient emissions level the optimal audit mechanism creates a contest exploiting the strategic interdependencies between the firms where the probability of winning not being audited for each firm depends on costly efforts their taxable emissions reports

an economic analysis of tax amnesties abstract tax amnesties have frequently been justified as politically popular ways to generate increases in government revenue this paper examines the circumstances under which amnesties are likely to have a beneficial impact on revenue collections it concludes that while in general it may be correct to impose a reduced penalty on individuals who voluntarily disclose tax evasion shortlived amnesties of the type most frequently observed in practice are unlikely to generate genuinely additional revenue particularly when judged against the potential danger of reducing future tax compliance

firm behaviour under pollution ratio standards with non compliance this paper compares a firm s short run optimal production and abatement rules under emission level standards and standards expressed in terms of emissions per unit of output ratio standards the models allow for non compliance with standards with expected penalties dependant on either level or relative violations of the standard in question it is shown that ratio arguments make a difference to the optimal decision rules derived for a profit maximising firm for example for a given level of emissions the firm both produces more and abates more under a ratio standard so that ratio and level standards cannot be used interchangeably to achieve the same combination of emissions and output the implications for the efficiency of pollution control are briefly discussed

graduated punishments in public good games a host of social situations feature graduated punishments we explain this phenomenon by studying a repeated public good game in which a social planner imperfectly monitors agents to detect shirkers agents cost of contributing is private information and administering punishments is costly a low punishment today imperfectly sorts agents by type only low cost agents contribute the planner uses this information optimally punishing tomorrow s alleged repeat shirkers harsher than rst time shirkers the threat of becoming branded as repeat oender allows the planner to use a very mild punishment for rst time shirkers attenuating the costs associated with administering punishments graduated punishments are consequently socially optimal as long as the population is not too homogeneous

quota enforcement in resource industries self reporting and differentiated inspections quotas are frequently used in the management of renewable resources and emissions however in many industries there is concern about their basic effectiveness due to non compliance we develop an enforcement model of a quota regulated resource and focus on a situation with significant non compliance and exogenous constraints on fines and enforcement budget we propose a new enforcement system based on self reporting of excess extraction and explicit differentiation of inspection rates depending on compliance history we use differentiated inspections to induce firms to self report excess extraction this system increases the effectiveness of the quota by allowing the regulator to implement a wider range of aggregate extraction targets than under traditional enforcement while ensuring an efficient allocation of extraction in addition inspection costs can be reduced without reductions in welfare

competition in interregional taxation the case of western coal markets for many products are dominated by small group of states or countries with a natural advantage in the marketplace because of some initial endowment of resources favorable climate or location the purpose of this paper is to explore how such markets involving a few political jurisdictions interact noncooperatively we examine how such a market might be structured and operate and the extent of monopoly rent that can be extracted in the absence of collusion we answer these questions for an empirically estimated model of western u s coal in which two states montana and wyoming dominate production we demonstrate that in this market the amount of rent that can be extracted is greatly reduced through competition relative to a cartel nevertheless even with two producing states competing against each other significant rents can be captured significant enough to refute the contention that little rent can accrue without a cartel

low carbon lifestyles a framework to structure consumption strategies and options to reduce carbon footprints abstract there are many opportunities for consumers to design their lives more sustainably while a rapidly growing body of literature has investigated how consumers can reduce carbon footprints in key consumption areas such as food housing and mobility an overall framework that allows structuring those options across all consumption areas is still missing hence this paper presents a novel and systematic framework to identify improvement options that promote climate change mitigation and structure them based on their primary mode of impact on ghg emissions the framework targets consumer practices and focuses on ambitious but technically and socioeconomically feasible strategies for consumers to lower their carbon footprint four major categories for reducing consumption based emissions form the basic framework which are then subdivided into behavioural strategies and sub strategies the practical application of the framework is illustrated by using food consumption as an example systematically identifying improvement options can advance a holistic understanding of the range of behavioural strategies targeting consumer choices that operate at different stages in the supply chain it thus provides a starting point for addressing critical questions related to the role of consumers in supporting climate change mitigation

can punishment generate specific deterrence without updating analysis of a stated choice scenario this study explores the specific deterrence generated by punishment in the context of regulatory violations with a focus on the distinction between upward revisions to future punishment parameters likelihood and severity and the experience of being penalized in order to avoid the pitfalls of empirically analyzing actual choices made by regulated entities e g measuring entities beliefs regarding the likelihood and size of future penalties our study examines behavior associated with a stated choice scenario presented within a survey distributed to the environmental managers of facilities regulated under the us clean water act this choice of respondents strengthens the external validity of our empirical results based on a variety of statistical methods our empirical results strongly and robustly reject the standard hypothesis that specific deterrence stems solely from upward revisions to punishment parameters while supporting the alternative hypothesis of experiential deterrence whereby facilities focus on recent experiences to shape their compliance behavior

why do manufacturing facilities introduce environmental management systems improving and or signaling performance abstract in this paper we explore the motivation for the introduction of environmental management systems and their certification a distinction is drawn between their role in bringing about better compliance or improved performance and as external indicators of good environmental practices to both other market participants and regulatory authorities drawing upon a database of approximately 4000 facilities in seven oecd countries empirical evidence is found for the role that both factors play in encouraging the adoption and certification of ems s but that the relative importance of different factors varies according to facility size

regulatory dealing revisiting the harrington paradox abstract despite the fact that i when the epa observes regulatory violations it rarely pursues the violator and ii the expected penalty faced by a violator who is pursued is small compared to the cost of compliance it is still the case that iii firms comply a significant portion of the time winston harrington harrington w 1988 enforcement leverage when penalties are restricted journal of public economics 37 29 53 provides a dynamic model consistent with this apparent paradox we offer an alternative rationalisation in a model of regulatory dealing in which the agency uses tolerance in some contexts to induce increased compliance in others the observed tolerance of the epa to non compliance may be a strategic response by the agency to a difficult enforcement environment rather than evidence that it has gone soft on pollution or been captured by industry interests we use the model to consider the impact of the growing trend towards citizen suits and ngo enforcement of regulation arriving at some unconventional conclusions we argue that the model is consistent with existing empirical analyses

pooling of uncertainty enforcing tradable permits regulation when emissions are stochastic an under appreciated advantage of tradable permits regulation is its ability to create better decision making when emissions are stochastic in general the distribution of stochastic actual emissions around intended emissions results in over or under compliance permit tradability reduces the extent to which actual aggregate emissions deviate from regulatory targets by giving firms an additional mechanism for responding to uncertainty we construct a two period model of permit regulation with ex post enforcement to demonstrate how the permit market distributes uncertainty and to illustrate the importance of expectations toward permit market outcomes

enforcement leverage when penalties are restricted a reconsideration under asymmetric information abstract harrington harrington w 1988 enforcement leverage when penalties are restricted journal of public economics 37 29 53 offers an explanation for how relatively high compliance rates might co exist with low expected fines his results are highly dependent on the assumptions that all firms are identical and their compliance costs are known this paper shows that harrington s results are not necessarily robust in a more general model where asymmetric information and uncertainty are present

measurement error and state dependent pollution control enforcement abstract a two group model of state dependent enforcement is applied to identical firms which minimize the expected present value of costs and fines measurement error affects the probabilities of transitions between groups and the receipt of fines it is shown that state dependent enforcement can reduce social cost below the level attainable with static enforcement and that differentiation in both monitoring probabilities and standards may be optimal however setting fines for both groups at the maximum is likely to be optimal comparisons between models and alternative model interpretations are offered

the regulatory choice of noncompliance in emissions trading programs this paper addresses the following question to achieve a fixed aggregate emissions target cost effectively should emissions trading programs be designed and implemented to achieve full compliance or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target the total costs of achieving the target consist of aggregate abatement costs monitoring costs and the expected costs of collecting penalties from noncompliant firms under common assumptions i show that allowing noncompliance is cost effective only if violations are enforced with an increasing marginal penalty however one can design a policy that induces full compliance with a constant marginal penalty that meets the aggregate emissions target with lower expected costs this last result does not depend on setting an arbitrarily high constant marginal penalty in fact the marginal penalty need not be higher than the equilibrium marginal penalty under the policy with the increasing marginal penalty and can actually be lower finally tying the marginal penalty directly to the permit price allows the policy objective to be achieved without any knowledge of firms abatement costs

a reconsideration of enforcement leverage when penalties are restricted abstract harrington s 1988 model of state dependent enforcement of pollution standards indicates the potential for significant reductions in monitoring cost however this approach results in firms with identical pollution cost functions polluting at different levels and thereby failing to minimize control cost for a given total pollution reduction derivations indicate that a state independent approach with a modified standard will often yield a lower sum of pollution control and monitoring cost for a given level of pollution control

product lifetime optimization a challenging strategy towards more sustainable consumption patterns this article discusses how and when product lifetime optimization of consumer goods can be a challenging strategy towards more sustainable consumption first the environmental desirability of longer lasting products is discussed this leads to the introduction of the ecological payback period a simple rule of thumb to determine when product lifetime extension is environmentally sound the effectiveness of extending the product lifetime depends however on the replacement motives of consumers based on qualitative and quantitative consumer research a typology of four general replacement motives is presented wear and tear improved utility improved expression and new desires

stochastic pollution costly sanctions and optimality of emission permit banking abstract this paper identifies a new economic motive for pollution regulations that allow polluting firms to bank and borrow emission permits over time when aggregate pollution is stochastic an intertemporal permit trading regime can provide firms with efficient incentives for pollution abatement without the need for costly government enforcement actions that would otherwise be required

enforcement leverage when penalties are restricted in the united states empirical studies of the enforcement of continuous compliance with environmental regulations especially air and water pollution regulations have repeatedly demonstrated the following i for most sources the frequency of surveillance is quite low ii even when violations are discovered fines or other penalties are rarely assessed in most states iii sources are nonetheless thought to be in compliance a large part of the time the evidence for the apparently low level of enforcement activity is found in a number of case studies of state and local enforcement of air and water quality regulations conducted jointly by the environmental protection agency epa and council on environmental quality ceg together with periodic surveys of implementation of air and water quality legislation conducted by the general accounting office gao these surveys show

state dependent enforcement to foster the adoption of new technologies harrington j public econ 37 29 53 1988 shows that a suitable strategy for regulators to make enforcement more efficient is to target surveillance resources according to past compliance records such scheme generates enforcement leverage as non compliance triggers greater future scrutiny increasing the expected costs of non compliance beyond the avoidance of immediate fines in this paper we propose an improved transition structure for the audit framework in which targeting is based not only on firms past compliance record but also on adoption of environmentally superior technologies we show that this transition structure would not only foster the adoption of new technology but also increase deterrence by changing the composition of firms in the industry toward an increased fraction of cleaner firms that pollute and violate less

guilty until proven innocent regulation with costly and limited enforcement abstract we consider optimal regulations for a polluting firm when regulators cannot observe emission control costs and can only observe emissions via costly monitoring fines or subsidies for enforcing compliance are also limited the optimal regulations resemble a deposit refund system the firm reports its emissions and pays an initial tax based on this report if the firm is monitored it receives a rebate when actual and reported emissions coincide the enforcement constraints and the firm s rights determine whether the incentives to reduce emissions are optimally provided by varying the rebate for compliance the monitoring probability or the initial tax

panel data analysis of regulatory factors shaping environmental performance this is the publisher s version also available electronically from http www mitpressjournals org doi abs 10 1162 003465304323023895 u1q6giuvdgi

it pays to be green a premature conclusion it has been claimed that good environmental performance can improve firms economic performance however because of e g data limitations the methods applied in most previous quantitative empirical studies on effects of environmental performance on economic performance of firms suffer from several shortcomings we discuss these shortcomings and conclude that previously applied methods are unsatisfactory as support for a conclusion that it pays for firms to be green then we illustrate the consequences of these shortcomings by performing several regression analyses of the effect of environmental performance on economic performance using a panel data set of norwegian plants a pooled regression where observable firm characteristics like e g size or industry are controlled for confirms a positive effect of environmental performance on economic performance however the estimated positive effect could be due to omitted unobserved variables like management or technology when the regression model controls for unobserved plant heterogeneity the effect is generally no longer statistically significant hence although greener plants tend to perform economically better the analysis provides little support for the claim that it is because they are greener these empirical findings further indicate that a conclusion that it pays to be green is premature

common pool resource appropriation under costly cooperation abstract in addition to the usual fixed costs we introduce variable costs in a community s effort to cooperate in extracting from a common pool resource using a standard supervision mechanism these variable costs are shown to be an increasing function of individual members incentives to default the model explains why we frequently observe communities that all cooperate and have relatively similar resource endowments and yet achieve very different levels of extraction

on the solution of optimal tax models and other optimization models in economics abstract numerical methods figure prominently in recent optimal tax studies state of the art software packages can readily solve optimal tax models and other optimization models using one such package two recent highly non linear tax models are solved to obtain further results for one model and correct solutions for the second

permanent versus interim regulations a game theoretic analysis abstract when a regulator anticipates learning about the benefits or costs of regulations over time questions can be raised about the appropriate regulatory policy this paper compares permanent and interim regulations in a setting with initially uncertain pollution damages a fixed capital input and costly enforcement the analysis shows that neither policy is first best conditions under which one policy dominates the other are identified with the help of a simulation the results indicate that permanent regulations may be preferable to interim regulations even when there is substantial uncertainty about damages

regulatory objectives and enforcement behavior economic models of enforcing environmental law have incorporated varying assumptions about regulatory objectives this paper examines the consequences of different attitudes toward the benefits and costs of pollution control on the part of regulators who have limited powers and resources we find that greater weight given to compliance costs relative to the social damages of the polluting activity will bring outcomes closer to the optimum when the regulator is strong but may move outcome further from the social optimum when regulatory powers are weak when negotiated noncompliance is an option greater consideration of compliance costs will tend to produce better results

the revealed preferences of state epas stringency enforcement and substitution abstract the epa suggests states inspect polluters at least once a year and use sampling and nonsampling inspections equally states face two separate pressures in their attempts to comply with these mandates political and budgetary budgetary considerations arise because inspections are costly while political pressures arise because the stringency of enforcement in part determines the cost abatement this study estimates the relative importance of political and budgetary pressures in the stringency with which the clean water act is enforced the results suggest that inspections determined by budgetary concerns and the stringency of inspections is determined in part by political factors

noncompliant firms in transferable discharge permit markets some extensions abstract this paper extends the results of previous research on transferable discharge permit tdp markets with noncompliant firms to make a specific comparison between standards and tdp systems when regulatory authorities are unable to achieve full compliance particular attention is given to the importance of the shape of the penalty function facing noncompliant firms the analysis indicates that under plausible penalty functions tdp markets may allow more pollution or a higher fraction of regulated firms out of compliance these results highlight the importance of implementation in the success of pollution control strategies relying on tdp markets

using competition to stimulate regulatory compliance a tournament based dynamic targeting mechanism abstract this article develops a tournament based dynamic targeting mechanism for achieving regulatory enforcement leverage in contrast to existing models which rely on a representative agent we model a game among a regulated group of agents possibly heterogeneous in their levels of a regulated activity that compete through their compliance decisions to avoid being targeted for future audits the empirical properties of the dynamic tournament are established using economics experiments in particular we test comparative statics highlight the importance of inducing competition through comparisons with a non competitive standards based targeting mechanism and demonstrate enforcement leverage through comparisons with simple random audits the experiments suggest that the dynamic tournament induces incentives consistent with theory and overall we find that introducing competition in the regulatory enforcement arena may have important advantages

the year of the cat taxing nuclear risk with the help of capital markets abstract this paper proposes new regulation for nuclear power reactors aimed at increasing their safety we begin by describing how limited liability leads to risk loving behaviour in nuclear power companies and unsafe nuclear power reactors by reviewing current regulatory regimes we show that this issue is not being sufficiently addressed today therefore we evaluate five regulatory instruments 1 safety regulation 2 minimum equity requirements 3 mandatory insurance 4 risk sharing pools and 5 catastrophe bonds we conclude that any of these instruments either cannot be recommended in its pure form or is infeasible in reality we therefore propose a new approach that in its core consists of a two stage procedure in the first stage capital markets assess the risk stemming from each nuclear reactor via catastrophe bonds in the second step the regulator uses this private risk assessment and intervenes by charging an actuarially fair premium in the form of a pigouvian risk tax society ultimately acts as an explicit insurer for nuclear risk and is on average fairly compensated for the risk it is taking over

the enforcement of pollution control laws inspections violations and self reporting targeting is the practice of inspecting firms most likely to violate a regulation this paper provides empirical evidence on the role of targeting in regulatory compliance i propose that self reporting by a firm is used to demonstrate that firms are willing to cooperate the results indicate that there is a one quarter penalty period following a violation inspections are also determined by the economic situation of the surrounding community demonstrating that targeting opens the door to interest group influence inspections that detect violations encourage self reporting showing that firms demonstrate their desire to cooperate with regulators by disclosing violations

is product durability better for environment and for economic efficiency a comparative assessment applying lca and lcc to two energy intensive products abstract the importance of product durability is becoming increasingly recognised as europe strives to move towards a circular economy where products are designed and manufactured in a way that helps save resources and minimize waste however till now no agreement has been reached on the potential benefits that increased durability of products may yield especially for energy using products there is an increasing debate on whether greater environmental and cost benefits are achieved through extending the lifetime of the product or rather by replacing it with a new more energy efficient model the aim of this work is thus to investigate if and in which conditions extended durability of energy intensive products is desirable from an environmental and an economic perspective in order to assess the environmental impact of increased durability of products life cycle assessment lca and life cycle costing lcc have been applied to perform a comparative analysis between a durable and a standard option for two different products domestic refrigerator and freezer and domestic electric oven several sensitivity analyses have been performed on purchase price cost of electricity energy efficiency according to the results of this study if from an economic point of view for the user more durable products are practically always the preferred choice this is not always the case from the environmental point of view only when the production and end of life stages have very high impacts compared to the use phase the more durable option is preferred from both an economic and an environmental point of view

further results on permit markets with market power and cheating abstract this paper examines a market for pollution permits in which one firm has market power and one or more firms is noncompliant i show that the firm with market power may choose to hold more permits than it needs effectively retiring permits from the market i also show that some noncompliance may be socially desirable because it can mitigate the distortion caused by market power similarly some degree of market power may be socially desirable because it can in turn mitigate the distortion caused by noncompliance

incremental and average control costs in a model of water quality trading with discrete abatement units this paper answers three questions related to the discrete nature of pollution abatement i does a source s incremental control cost as defined by the u s environmental protection agency necessarily exceed its average control cost ii is incremental control cost a better approximation of a source s willingness to pay for abatement credits than average control cost and iii exactly how does trading in discrete and continuous abatement markets differ we find that the answer to the first two questions are both no suggesting that the u s environmental protection agency needs to refine its reliance on incremental control cost as the sole measure upon which to assess the financial feasibility of water quality trading in answer to the third question we show that the outcome of bilateral trading in the presence of discrete abatement is determined by comparing the gains from trade associated with the full sequence of possible sunk cost trading scenarios for the most common case where trading partners average control cost curves cross the trading outcome with discrete abatement is inherently sensitive to the initial allocation of abatement responsibilities

enforcement costs and regulatory reform the agency and firm response influenced by models of optimal law enforcement several authors have recently revised the work on efficient levels of regulatory control to accommodate the realities of underenforcement and imperfect compliance however most of these efforts have centered on either the enforcement agency or the firm and have largely ignored the decentralized nature of the enforcement process this paper extends these results by modelling both the firm and the local agency and by incorporating detection uncertainty and concealment activity each model is then evaluated with respect to the alternative regulatory regimes of direct controls and emission taxes

when and for whom would e waste be a treasure trove insights from a network equilibrium model of e waste flows electrical and electronic equipment waste e waste is growing fast due to its potential economic value as well as its possible negative impacts on the environment tracing e waste flow is a major concern for stakeholders of e waste management especially whether or not adequate amounts of electrical and electronic equipment waste weee flow into the designed recycling systems is a fundamental issue for sustainable operations in this paper we analyze how technical market and legislative factors influence the total amount of e waste that is collected recycled exported and legally and illegally disposed off we formulate the e waste network flow model as a variational inequality problem the results of the numerical examples highlight the importance of considering the interaction between the supply and the demand side for precious materials in policy decisions low collection rates of e waste lead to low profits for stakeholders and make it difficult to establish sustainable recycling operations increasing weee collection rates increases recyclers profits however it only increases smelters profits up to a certain limit after which smelters cannot benefit further due to limited demand for precious materials furthermore the results emphasize the importance of establishing international control regimes for weee flows and reveal possible negative consequences of the recent trend of dematerialization more precisely product dematerialization tends to decrease recyles and smelters profits as well as to increase the outflow of e waste from the designated recycling system authors abstract

enforcement and price controls in emissions trading this paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms abatement costs the analysis highlights how an enforcement strategy can cause abatement cost risk to be transmitted to enforcement costs via the price of permits when this occurs accommodating the effect of abatement cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second best optimal values however it is possible to design an enforcement strategy that shields enforcement costs from abatement cost risk by tying sanctions directly to permit prices this enforcement strategy stabilizes enforcement effort the optimal permit supply and price controls are independent of enforcement costs and the policy produces the second best optimal outcome

firms compliance to environmental regulation is there really a paradox it has often been claimed that firms compliance to environmental regulations is higher than predicted by standard theory a result labeled the harrington paradox in the literature enforcement data from norway presented here appears at first glance to confirm this stylized fact firms are inspected less than once a year detected violators are seldom fined but still serious violations seem relatively rare however at a closer look the pattern seems less paradoxical enforcement of minor violations is lax but such violations do flourish serious violations on the other hand are subject to credible threats of harsh punishment and such violations are more uncommon this seems quite consistent with predictions from standard theory we argue that the empirical existence of the harrington paradox is not well documented in the international literature the claim that firms compliance with environmental regulations is generally higher than predicted by standard theory should thus be regarded as a hypothesis rather than an established fact

prices versus quantities with incomplete enforcement abstract i study whether incomplete enforcement of a regulation has any impact on the choice between price e g taxes and quantity e g tradeable quotas instruments results indicate that a second best design accounting for incomplete enforcement can be implemented equally well with either instrument as long as the benefit and cost curves are known with certainty if these curves are uncertain to the regulator however the quantity instrument performs relatively better than the price instrument the reason is that the effective amount of control under the quantity instrument is no longer fixed which makes this instrument come closer to a non linear instrument

voluntary pollution reductions and the enforcement of environmental law an empirical study of the 33 50 program abstract this paper studies determinants and effects of firms participation in the 33 50 program which is a voluntary pollution reduction vpr program initiated by government regulators we examine a wide range of explanations for voluntary corporate environmentalism and find evidence in support of an enforcement theory that predicts that 1 vpr participation is rewarded by relaxed regulatory scrutiny 2 the anticipation of this reward spurs firms to participate in the program and 3 the program rewards regulators with reduced pollution we also find that 33 50 participation was more likely for firms operating in states with larger environmentalist constituencies

the relative efficiency of voluntary vs mandatory environmental regulations abstract increased use of voluntary programs for environmental protection as an alternative to mandatory approaches raises the issue of the relative efficiency of the two approaches this paper analyzes the efficiency of voluntary programs relative to mandatory programs in agriculture under the voluntary program producers adopt a land conservation practice and in turn the government provides technical and financial assistance the voluntary program is more efficient than a program that mandates adoption if and only if the deadweight losses of government expenditures under the voluntary program are less than the difference between private and public costs of government services plus the additional implementation costs of the mandatory program this necessary and sufficient condition is more likely to be satisfied when a the deadweight loss from raising government revenue is zero or small b government services are less rival c the costs of government services are lower than what farmers would have to pay for equivalent private services d the number of farms in the program is large and e the saving in implementation costs under the voluntary program is large and increases rapidly with program acreage

enforcement costs and the choice of policy instruments for controlling pollution i introduction when evaluating policy instruments for controlling pollution analysts generally agree that economic incentives are superior to direct controls in terms of minimizing abatement costs however when it comes to minimizing enforcement costs there is no such agreement some analysts such as freeman et al 1973 and anderson et al 1977 argue that economic incentives would be much easier to enforce than direct controls while others such as drayton 1978 argue that they would be virtually unenforceable the debate typically centers on technical difficulties in continuously monitoring emissions and to a lesser extent on political and legal issues related to the assessment of penalties 1 an issue that has not been examined is whether there are economic reasons for enforcement costs to vary across policy instruments although there is now a sizable economic literature on the problem of noncompliance with pollution control policies there have been no attempts to formally compare enforcement costs across policy instruments 2 accordingly the purpose of this note is to examine whether there are economic grounds for arguing that enforcement costs would be lower for economic incentives than direct controls 3 the policy instruments compared are marketable permits or emissions taxes and uniform standards the instruments are compared in a setting where the penalty schedule is previously specified by some judicial or legislative body and the regulator s enforcement policy is limited to the choice of audit frequency the analysis is based on the premise that for any policy instrument that targets emissions the regulator will have to periodically monitor emissions and assess penalties for noncompliance the relevant question then is whether less frequent monitoring would be required to ensure compliance with economic incentives casual analysis suggests this should be the case economic incentives minimize aggregate abatement costs and lower abatement costs imply lower costs to firms of complying this should imply in turn that less stringent enforcement is needed to achieve compliance this argument although intuitively appealing is flawed using a simple model of pollution control with costly enforcement i show that enforcement costs narrowly defined may be higher for economic incentives for purposes of exposition the result is established in a setting where the regulator ensures each firm is fully compliant however as shown in the appendix the result generalizes to the more realistic setting where firms are partially compliant ii the model consider a group of n risk neutral firms emitting a single pollutant for simplicity the damages from the pollutant are assumed to depend only on total emissions each firm s abatement costs are given by a strictly convex function c sub i x sub i that is decreasing in emissions x sub i the firm s maximum emissions level is denoted mathematical expression omitted and is defined by mathematical expression omitted with probability p sub i a regulator audits each firm and measures its emissions if the regulator finds the firm s actual emissions x sub i exceed its allowed emissions s sub i the firm is assessed a fine of f x sub i s sub i as is common in the literature on enforcement i assume the fine schedule is previously specified e g by a legislative body 4 thus the regulator can choose the probability with which it audits firms but not the fine it assesses for noncompliance i assume the fine schedule is such that both the total fine and marginal fine are increasing in the violation size x sub i s sub i f prime is greater than 0 and f prime prime is grater than 0 because the regulator is assumed to ensure full compliance no violations occur and no fines are collected therefore enforcement costs consist solely of auditing or monitoring costs to simplify the analysis the cost of conducting an audit a is assumed to be the same across firms

environmental policy instruments technology adoption incentives with imperfect compliance we study the incentives to adopt advanced abatement technologies in the presence of imperfect compliance interestingly incentives under emission taxes and pollution abatement subsidies are the same that in the perfect compliance scenario however under emission standards imperfect compliance can increase firms incentives to invest whereas under an emission permit mechanism investment incentives decrease only if widespread non compliance induces a reduction in the permit price our results are valid for fairly general characteristics of the monitoring and enforcement strategies commonly found in both theoretical and empirical applications

corporate environmentalism and environmental statutory permitting abstract studies have shown that despite infrequent inspections and low penalties for statutory violations a large fraction of firms comply with environmental restrictions what then motivates compliance i investigate this question by focusing on the length of time it takes environmental agencies to process and issue new source construction permits pursuant to clean air act regulations and new industrial discharge permits pursuant to clean water act regulations i find that plants or firms with fewer instances of noncompliance receive permits for major projects more quickly in addition i find that permit delays are sensitive to economic conditions as well such as local area unemployment as far as voluntary pollution control behavior is concerned i find that regulators that issue permits for plant modifications focus primarily on statutory compliance but when permitting new plant construction where there is no plant compliance history to go on voluntary pollutant releases do matter

truth or consequences enforcing pollution standards with self reporting abstract evidence suggests that a surprisingly large fraction of firms comply with pollution emission standards even though expected penalties for noncompliance are low we offer an explanation of this puzzle by extending the standard model of enforcement to include a self reporting requirement and enforcement power these extensions are enough to challenge the conventional result that higher fines lead to higher compliance rates we find that under plausible conditions higher compliance rates are achieved with lower fines for noncompliance and the cost of enforcing a given level of aggregate pollution is minimized by setting the fine for noncompliance equal to zero

cutting environmental penalties to protect the environment abstract when pollutants are persistent and the polluter has private information regarding the occurrence of accidental releases and the cost of clean up we show that the penalty regime which most effectively protects the environment will involve penalties which are less than maximal the extent to which these penalties will be less than maximal is interestingly a non monotonic function of the persistence of the hazardous substance being handled with the highest penalties being appropriate in the case of pollutants of medium persistence our analysis complement consisting work which predicts that setting the penalties faced by some classes of violator below their maximal level may be compliance enhancing see for example harrington journal of public economics 1988 37 29 53 greenberg journal of economic theory 1984 32 1 13 kambhu journal of regulatory economics 1989 1 103 114

creative destruction and destructive creations environmental ethics and planned obsolescence three decades ago planned obsolescence was a widely discussed ethical issue in marketing classrooms planned obsolescence is topical again today because an increasing emphasis on continuous product development promotes shorter durables replacement and disposal cycles with troublesome environmental consequences this paper offers explanations of why product obsolescence is practiced and why it works it then examines the ethical responsibilities of product developers and corporate strategists and their differing responses to this problem pro environment product design and marketing practices and innovative government policies may alleviate the problem over time however given the current lack of understanding about consumer replacement and disposal behavior it is questionable as to whether these practices and policies will be sufficiently informed to be effective thus marketing scholars have a significant opportunity to contribute to sustainable durables product development

intergovernmental versus intersource emissions trading when firms are noncompliant abstract this paper analyzes the relative cost effectiveness of intergovernmental versus intersource cross border emissions trading when polluting firms are noncompliant a special focus is placed on the presence of enforcement costs and the associated credibility problem of governmental monitoring it is shown that without inspection commitment the intergovernmental system is more cost effective because the endorsed flexibility in domestic emission taxation serves as a commitment device for building credibility of monitoring

optimal pollution standards and non compliance in a dynamic framework in this paper we present a stackelberg differential game to study the dynamic interaction between a polluting firm and a regulator who sets pollution limits overtime at each time the firm settles emissions taking into account the fine for non compliance with the pollution limit and balances current costs of investments in a capital stock which allows for future emission reductions we derive two main results first we show that the optimal pollution limit decreases as the capital stock increases while both emissions and the level of non compliance decrease second we find that offering fine discounts in exchange for firm s capital investment is socially desirable we numerically obtain the optimal value of such discount which crucially depends on the severity of the fine in the limiting scenario with a very large severity of the fine the optimal discount implies that no penalties are levied since the firm shows adequate adaptation progress through capital investment

bargaining in environmental regulation revisited abstract we explore the possibility that firms and regulators achieve cooperative agreements in environmental regulation we show that it is possible that firms choose cleaner technologies in exchange for reductions of the fines for non compliance with environmental standards interestingly the likelihood of achieving these agreements depends negatively on the monitoring costs positively on the external damages and non monotonically on the differences among the eligible technologies and the maximum sanctions for violating the standards

comparing environmental policy instruments in the presence of imperfect compliance a case study in this paper we aim to include rule making implementation monitoring and enforcement costs into the cost comparison of policy instruments we use a simple partial equilibrium model and apply it to the textile industry the model includes discrete abatement functions and costly monitoring and enforcement the case study uses individual firm data to simulate the differences in abatement costs and compliance decisions between firms we compare combinations of regulatory instruments emission taxes emission standards and technology standards and enforcement instruments criminal fines civil fines and transaction offers we show that the inclusion of information monitoring and enforcement costs indeed alters the relative cost efficiency of the different instruments

the two part instrument in a second best world abstract standard pigovian tax theory has been extended in two directions first many polluting activities are difficult to tax because they are not market transactions and so recent papers have shown that the same effects can be achieved by use of a two part instrument 2pi a tax on output or income and a subsidy for clean alternatives to pollution it is a generalization of a deposit refund system drs second a different literature concerns the second best pollution tax in the presence of other tax distortions here we combine the two extensions by looking at the second best 2pi when government needs revenue is the deposit larger and the rebate smaller we find explicit solutions for each tax and subsidy in a general equilibrium model with other tax distortions and we compare these to the rates in a first best model the tax subsidy combination is explained in terms of a tax effect an environmental effect and a revenue effect the model allows for flexible interpretation to show various applications of the 2pi we also discuss important caveats

non compliance and the quota price in an itq fishery this paper examines the effects of non compliance on quota demands and the equilibrium quota price in an itq fishery i show that whereas lower quota prices are implied unambiguously by expected penalties which are a function of the absolute violation size the expectation of penalties based upon relative violations of quota demands can under certain conditions produce higher quota prices than in a compliant quota market if there are both compliant and non compliant firms in the fishery the result would then be a shift in quota demand from compliant to non compliant firms rather than the reverse the findings are generally applicable to quota markets in other industries including pollution permit markets

corruption and air pollution in europe this paper examines how the effectiveness of regulatory framework influences levels of sulphur emissions in a scenario where to reduce its emission tax payments a polluting firm may under report emissions level at the risk of being audited and fined first a model to explain how changes in regulatory framework e g audit effectiveness and transboundary spillovers affect both actual and reported emissions is developed then the theoretical predictions using data for 39 european countries from 1999 to 2003 are tested and inferences about true emission levels are made the empirical analysis supports the theoretical predictions with significant implications for the interpretation of pollution data reported to international monitoring agencies countries with effective regulation are likely to have relatively high reported emissions of sulphur but this should not automatically be interpreted as weak environmental performance because their actual pollution levels are likely to be lower than in nations with less effective regulation

avoiding tax avoidance a repeated game theoretic approach abstract we propose an optimal auditing scheme for the tax authorities who face a given tax and penalty functions and a given budget constraint under our proposed strategy individuals can be classified into one of three groups each group is characterized by two parameters i the probability of being audited in that group and ii into which group will an individual move if ii a he reported truthfully ii b he cheated it is then shown that there is a choice of these parameters so that in equilibrium i e when every individual maximizes his payoff given the auditing strategy the percentage of individuals that cheat is arbitrarily small

incentive generating state dependent penalty system the case of income tax evasion abstract penalty systems can very often be looked upon as corrective measures established in order to eliminate or reduce costly externalities generated by optimizing economic agents hence penalties can be viewed as regulatory measures and their efficient structure should be of interest to economists we propose a dynamic incentive generating penalty system which if instituted may reduce at a given cost the generation of undesirable externalities the special case to which we refer is income tax evasion although our scheme should be applicable to any kind of externalities such as pollution of the environment violation of antirust laws and others which are created by repititive actions of economic agents

an experimental study of compliance and leverage in auditing and regulatory enforcement evidence suggests that a large majority of firms and individuals comply with regulations and tax laws even though the frequency of inspections and audits is often low moreover fines for noncompliance are also typically low when regulatory violations are discovered these observations are not consistent with static compliance models harrington 1988 modified these static models by specifying a dynamic game in which some agents have an incentive to comply even when the cost of compliance each period is greater than the expected penalty this paper reports a laboratory experiment based on the harrington model framework in which subjects move between two inspection groups that differ in the probability of inspection and severity of fine subjects decide to comply or not in the presence of low medium or high compliance costs enforcement leverage arises in the harrington model from movement between the inspection groups based on previous observed compliance and noncompliance our results indicate that consistent with the model violation rates increase when compliance costs become higher and as the probability of switching groups becomes lower behavior does not change as sharply as the model predicts however since violation rates do not jump from 0 to 1 as parameters vary across critical thresholds a simple model of bounded rationality explains these deviations from optimal behavior

community pressure for green behavior the desire to avoid rousing community hostility may encourage firms to behave in an environmentally responsible manner firms may engage in corporate social responsibility csr to maintain community support and or to regain the support of a community where it has been lost it has been conjectured that such informal regulation could effectively replace formal intervention in some settings and usefully complement it in others we explore these conjectures with mixed results informal regulation is necessarily less efficient than a well designed formal alternative and the pattern of green behavior induced by the threat of community hostility may increase or decrease welfare the existence of community pressure may increase or decrease the optimal calibration of a formal intervention in this case an environmental tax and may complement or detract from the incentives generated by an optimally calibrated tax

enforcing transferable permit systems in the presence of market power we derive an enforcement strategy for a transferable permit system in the presence of market power that achieves complete compliance in a cost effective manner we show that the presence of a firm with market influence makes designing an enforcement strategy more difficult than enforcing a perfectly competitive system we also re consider hahn s 1984 suggestion that a firm with market influence should be allocated permits so that it chooses to not participate in the permit market when enforcement and its costs are taken into account hahn s suggestion does not hold except in a very special case the presence of market power will limit the extent to which transferable emissions permit systems can fulfill their theoretical promises hahn 1984 was the first to show that permit trading in the presence of market power cannot be expected to result in a distribution of emissions that minimizes aggregate abatement costs furthermore the distribution of emissions will never be completely independent of the initial allocation of permits modeling a transferable permit system in which one firm has market power while the rest are perfect competitors a dominant firm competitive fringe model hahn demonstrated that aggregate abatement costs are minimized only when the dominant firm is allocated exactly the number of permits it will choose to hold in equilibrium simply aggregate abatement costs are minimized only when a firm that can manipulate the permit price does not because it chooses to not trade permits like most of the theoretical literature on transferable permit systems hahn ignored the fact that compliance in a permit system must be enforced recognizing this important omission van egteren and weber 1996 extended hahn s work to

to comply or not to comply pollution standard setting under costly monitoring and sanctioning in this paper we characterize optimal regulatory policies composed of a pollution standard a probability of inspection and a fine for non compliance in a context where both monitoring and sanctioning are socially costly and the penalty may include gravity and non gravity components at the regulator s discretion under given penalties the optimal policy entails compliance with the standard as long as a quite intuitive condition is met non compliant policies may include standards even below the pollution levels that minimize the sum of abatement costs and external damages interestingly the appropriate structure of the penalty under non compliance is highly progressive while the best possible shape of the fine under compliance is linear if the regulator is entitled to choose the structure of the fine linear penalties are socially preferred and the optimal policy induces compliance

do environmental regulations hamper productivity growth how accounting for improvements of plants environmental performance can change the conclusion abstract many economists maintain that environmental regulations hamper productivity growth a view supported by several empirical studies on industry or state level data however there is little research of the relationship between the stringency of environmental regulation and productivity growth at the plant level and the results of the few existing studies are ambiguous moreover the measures of productivity growth applied in previous studies do not credit plants for emission reductions and this may result in understatement of productivity growth we perform regression analyses of productivity growth on regulatory stringency using plant level data to credit a plant for emission reductions we include emissions as inputs when calculating an environmental malmquist productivity index emi and do not include emissions when calculation the traditional malmquist productivity index mi the regression analyses show that the overall effect of the regulatory stringency faced by plants on plants productivity growth is statistically insignificant when mi is applied to measure productivity growth however when we apply emi the effect is positive and statistically significant this indicates that not accounting for emission reductions when measuring productivity growth can result in too pessimistic conclusions regarding the effect of regulatory stringency on productivity growth

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages