Learning about compliance under asymmetric information

Carmen Arguedas and Sandra Rousseau

Resource and Energy Economics, 2012, vol. 34, issue 1, 55-73

Abstract: Over time, inspection agencies gather information about firms’ pollution levels and this information may allow agencies to differentiate their monitoring strategies in the future. If a firm is less successful than its peers in reducing emissions, it faces the risk of being targeted for increased inspections in the next period. This risk of stricter monitoring might induce high-abatement cost firms to mimic low-abatement cost firms by choosing lower emission levels, while the latter might try to avoid being mimicked. We explain firms’ compliance decisions and the inspection agency's monitoring strategy by means of a signaling game which incorporates dynamic enforcement and learning. Interestingly, we show that the ongoing signaling game between firm types might lead to firms over-complying with the emission standard.

Keywords: Monitoring and enforcement; Pollution; Learning; Signaling (search for similar items in EconPapers)
JEL-codes: D82 H83 K42 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Learning about compliance under asymmetric information (2008)
Working Paper: Learning about compliance under asymmetric information (2008)
Working Paper: Learning about compliance under asymmetric information (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:34:y:2012:i:1:p:55-73

DOI: 10.1016/j.reseneeco.2011.09.001

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