The optimal pricing of pollution when enforcement is costly

John Kevin Stranlund, Carlos A. Chávez and Mauricio G. Villena

Journal of Environmental Economics and Management, 2009, vol. 58, issue 2, pages 183-191

Abstract: We consider the pricing of a uniformly mixed pollutant with a model of optimal, possibly firm-specific, emissions taxes and their enforcement under incomplete information about firms' abatement costs, enforcement costs, and pollution damage. We argue that optimality requires an enforcement strategy that induces full compliance by every firm, except possibly when a regulator can base the probabilities of detecting individual violations on observable correlates of violators' actual emissions. Moreover, optimality requires discriminatory taxes, except when a regulator is unable to use observable firm-level characteristics to gain some information about the variation in firms' abatement costs or monitoring costs.

Keywords: Compliance; Enforcement; Emissions; taxes; Monitoring; Asymmetric; information; Uncertainty (search for similar items in EconPapers)
Date: 2009

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Related works:
Working Paper: The Optimal Pricing of Pollution When Enforcement is Costly (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jeeman:v:58:y:2009:i:2:p:183-191

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