The deterrence effect of linear versus convex penalties in environmental policy: laboratory evidence (original) (raw)
Related papers
The optimal pricing of pollution when enforcement is costly
Journal of Environmental Economics and Management, 2009
We consider the pricing of a uniformly mixed pollutant when enforcement is costly with a model of optimal, possibly firm-specific, emissions taxes and their enforcement. We argue that optimality requires an enforcement strategy that induces full compliance by every firm. This holds whether or not regulators have complete information about firms' abatement costs, the costs of monitoring them for compliance, or the costs of collecting penalties from noncompliant firms. Moreover, ignoring several unrealistic special cases, optimality requires discriminatory emissions taxes except when regulators are unable to observe firms' abatement costs, the costs of monitoring individual firms, or any firm-specific characteristic that is known to be jointly distributed with either the firms' abatement costs or their monitoring costs. In many pollution control settings, especially those that have been subject to various forms of environmental regulation in the past, regulators are not likely to be so ill-informed about individual firms. In these settings, policies that set or generate a uniform pollution price like conventional designs involving uniform taxes and competitive emission trading with freely-allocated or auctioned permits will not be efficient.
On Social and Market Sanctions in Deterring non Compliance in Pollution Standards
2007
In this paper, we theoretically explore the implications of social norms in deterring pollution standard fraud along with economic incentives provided both by markets and regulatory activities. The model assumes that a large number of risk-averse individuals differ not only in their private cost of compliance with the environmental standard but also in their individual aversion to fraud. The aversion of fraud is influenced by the extent of social norms. We show that there may be multiple equilibrium rates of compliance for a given enforcement policy. We also show that under risk aversion the potential loss in market revenues has an ambiguous effect on the equilibrium rates of compliance. Similarly, increasing the probability of audit may decrease the equilibrium rate of compliance when stochastic events make unvoluntary non compliance possible. Last, we show that the information brought to the market is crucial for polluters' behavior. For this, we explore the impact of self-rep...
Environmental Regulation: Proportional or Progressive Penalties?
2000
In this paper, we consider the design of optimal environmental poli- cies composed of pollution standards and probabilities of inspection, where fines for exceeding the standards depend on the degree of noncompliance and the environmental technology that the firm uses in its production pro- cess. We show that the selection of a progressive or a proportional penalty with respect to
Uncertain penalties and compliance: experimental evidence
Environmental Economics and Policy Studies, 2019
We present the results of a series of economic laboratory experiments designed to study the compliance behavior of polluting firms when penalties are stochastic. The experiments consist of a regulatory environment in which university students faced emission standards and an enforcement mechanism composed of audit probabilities and penalties (conditional on detection of a violation). We examine how uncertainty about the penalty affects the compliance decision and the extent of violation with two levels of enforcement: one in which the regulator induces perfect compliance and another one in which it does not. Our results suggest that in the first case, uncertain penalties increase the extent of violations in firms with higher marginal benefits. When enforcement is not sufficient to induce compliance, the uncertain penalties do not have any statistically significant effect on compliance behavior. Overall, the results suggest that a cost-effective design of emission standards should include complete, public information on the penalties for violations.
Journal of Applied Economics, 2009
We analyze the cost of enforcing a system of firm specific emissions standards vis a vis a transferable emissions permit system in the context of complete and incomplete information. We also examine the optimality of a transferable emissions permit system when abatement costs and enforcement costs are considered. We show that under incomplete information, regulation based on each firm-specific emissions standards cannot be less costly than a transferable emissions permit system. In addition, we find that the distribution of emissions that minimize aggregate program costs differ from the distribution of emissions generated by a competitive transferable emissions permit system. JEL classification codes: L51, Q28, K32, K42
Energyday Conference, 2008
Despite the growing literature on the market and non-market instruments that can be implemented in the greenhouse gases reduction policies, there has still been limited discussion on the implications of enforcement policies on rms' decisions on both polluting emissions and technology choices. Existing frameworks may be used to address this question, however, modied and more sophisticated frameworks are also required. This paper develops asymmetric information models where the regulator does not know the true emission level of each rm that it wishes to regulate. We assess a new enforcement mechanism and evaluate to what extend this mechanism aects incentives for the rms to reduce polluting emissions and to invest in clean energy technologies. Our analyses reveal that the combination of asymmetric information between the regulator and rms with the possibility of compliance and cheating strategies at the firm level may yield reduction of polluting emissions and adoption of environmental friendly technologies.
Optimal enforcement policy and firms’ emissions and compliance with environmental taxes
Journal of Environmental Economics and Management, 2006
In a market where firms with different characteristics decide upon both the level of emissions and their reports, we study the optimal audit policy for an enforcement agency whose objective is to minimize the level of emissions. We show that it is optimal to devote the resources primarily to the easiest-to-monitor firms and to those firms that value pollution the less. Moreover, unless the budget for monitoring is very large, there are always firms that do not comply with the environmental objective and others that do comply; but all of them evade the environmental taxes.
Uncertain Penalties and Compliance
We present the results of a series of laboratory economic experiments designed to study compliance behavior of polluting firms when information on the penalty is uncertain. The experiments consist of a regulatory environment in which university students face emission standards and an enforcement mechanism composed of audit probabilities and penalties (conditional on detection of a violation). We examine how uncertainty on the penalty affects the compliance decision and the extent of violation under two enforcement levels: one in which the regulator induces perfect compliance and another one in which it does not. Our results suggest that in the first case, uncertain penalties increase the extent of the violations of those firms with higher marginal benefits. When enforcement is not sufficient to induce compliance, the uncertain penalties do not have any statistically significant effect on compliance behavior. Overall, the results suggest that a cost-effective design of emission standards should consider including public and complete information on the penalties for violations.
Pollution Under Costly Enforcement and Incomplete Information
2009
We analyze the cost of enforcing a system of firm specific emissions standards vis a vis a transferable emissions permit system in the context of complete and incomplete information. We also examine the optimality of a transferable emissions permit system when abatement costs and enforcement costs are considered. We show that under incomplete information, regulation based on each firm-specific emissions standards cannot be less costly than a transferable emissions permit system. In addition, we find that the distribution of emissions that minimize aggregate program costs differ from the distribution of emissions generated by a competitive transferable emissions permit system.