To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning

Carmen Arguedas ()

No 2007/13, Working Papers in Economic Theory from Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History)

Abstract: In this paper, we characterize optimal regulatory policies composed of pollution standards, probabilities of inspection and fines for non-compliance, in a context where both monitoring and sanctioning are socially costly, and penalties may include gravity and non-gravity components at the regulator's discretion. The optimal policy entails compliance with the standards 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 penalties under non-compliance is highly progressive, while the best possible shape of the fines under compliance is linear only if non-gravity sanctions are not allowed.

Keywords: standards; monitoring; convex fines; non-compliance; non-gravity sanctions (search for similar items in EconPapers)
JEL-codes: K32 K42 L51 Q28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-law
Date: Written
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Journal Article: To Comply or Not To Comply? Pollution Standard Setting Under Costly Monitoring and Sanctioning (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:uam:wpaper:200713

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