More Stringent Cap or Higher Penalty Fee? Dealing with Procrastination in Environmental Protection
Dongmei Guo (),
Shouyang Wang () and
Lin Zhao ()
Additional contact information
Dongmei Guo: School of Economics, Central University of Finance and Economics
Shouyang Wang: Academy of Mathematics and Systems Science, Chinese Academy of Sciences
Lin Zhao: Academy of Mathematics and Systems Science, Chinese Academy of Sciences
Annals of Economics and Finance, 2020, vol. 21, issue 1, 41-69
Abstract:
People tend to procrastinate on immediate-cost activities. In environmental protection, resource conservation and pollution control commonly involve substantial immediate costs but long-delayed benefits, giving entrepreneurs an incentive to remain inactive. This paper assumes that procrastination is induced by "present bias,"" and examines how the government can design policies that promote efficiency in the regulation of procrastinating entrepreneurs. Our main findings are threefold. First, entrepreneurial present bias makes the environmental protection investment increase faster as the compliance deadline approaches. Second, the compliance cost incurred by the entrepreneur increases with the degrees of present bias and entrepreneurial naivete. Third, relative to the traditional policy for rational entrepreneurs without present bias, the optimal policy delivers a more stringent cap for naive entrepreneurs, but a higher penalty fee for sophisticated entrepreneurs.
Keywords: Environmental policy; Time-inconsistent preferences; Present bias; Procrastination; Cap-and-trade; Principal-agent (search for similar items in EconPapers)
JEL-codes: D01 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
http://down.aefweb.net/AefArticles/aef210102GuoWangZhao.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2020:v:21:i:1:guowangzhao
Access Statistics for this article
Annals of Economics and Finance is currently edited by Heng-fu Zou
More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().