Bankruptcy Risk and Imperfectly Enforced Emissions Taxes

John Kevin Stranlund and Wei Zhang ()
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Wei Zhang: Department of Resource Economics, University of Massachusetts Amherst

No 2008-3, Working Papers from University of Massachusetts Amherst, Department of Resource Economics

Abstract: Under favorable but reasonable conditions, an imperfectly enforced emissions tax produces the efficient allocation of individual emissions control; aggregate emissions are independent of whether enforcement of the tax is sufficient to induce the full compliance of firms, and differences in individual violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy—the allocation of emissions control is inefficient, imperfect enforcement causes higher aggregate emissions, and financially insecure firms choose higher violations.

Keywords: Bankruptcy; Emissions Taxes; Limited Liability (search for similar items in EconPapers)
JEL-codes: L51 Q28 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-reg
Date: 2008-07
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