Optimal Monitoring to Implement Clean Technologies when Pollution is Random

Ines Macho-Stadler () and David Perez-Castrillo ()

No 60, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We analyze environments where firms chose a production technology which, together with random events, determines the final emission level. We consider the coexistence of two alternative technologies. The cost of the adoption of the clean technology and the actual emissions are firms' private information. The environmental regulation is based on taxes over reported emissions, and on monitoring and penalties over unreported emissions. We show that the optimal monitoring is a cut-off policy, where all reports below a threshold are inspected with the same probability, while reports above the threshold are not monitored. We show that if the adoption of the technology is firms' private information, too few firms will adopt the clean technology under the optimal monitoring policy. However, when the EA can check the technology adopted by the firms, the optimal policy may induce overswitching or underswitching to the clean technology.

Keywords: Production technology; random emissions; environmental taxes; optimal monitoring policy. (search for similar items in EconPapers)
JEL-codes: K32 K42 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-law, nep-mic and nep-reg
Date: 2007-11
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Related works:
Working Paper: Optimal monitoring to implement clean technologies when pollution is random (2006)
Working Paper: Optimal Monitoring to Implement Clean Technologies when Pollution is Random (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:pad:wpaper:0060

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