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The optimal pricing of pollution when enforcement is costly

John Stranlund (), Carlos Chavez () and Mauricio Villena ()

Journal of Environmental Economics and Management, 2009, vol. 58, issue 2, 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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Working Paper: The Optimal Pricing of Pollution When Enforcement is Costly (2007) Downloads
Working Paper: The Optimal Pricing of Pollution When Enforcement is Costly (2007) Downloads
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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