Optimal Pollution Standards and Non-compliance in a Dynamic Framework
Francisco Cabo and
Additional contact information
Francisco Cabo: Universidad de Valladolid
Environmental & Resource Economics, 2017, vol. 68, issue 3, No 5, 537-567
Abstract In this paper we present a Stackelberg differential game to study the dynamic interaction between a polluting firm and a regulator who sets pollution limits overtime. At each time, the firm settles emissions taking into account the fine for non-compliance with the pollution limit, and balances current costs of investments in a capital stock which allows for future emission reductions. We derive two main results. First, we show that the optimal pollution limit decreases as the capital stock increases, while both emissions and the level of non-compliance decrease. Second, we find that offering fine discounts in exchange for firm’s capital investment is socially desirable. We numerically obtain the optimal value of such discount, which crucially depends on the severity of the fine. In the limiting scenario with a very large severity of the fine, the optimal discount implies that no penalties are levied, since the firm shows adequate adaptation progress through capital investment.
Keywords: Dynamic regulation; Stackelberg differential games; Non-compliance; Fines; Pollution standards (search for similar items in EconPapers)
JEL-codes: C61 C73 K32 K42 L51 Q28 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10640-016-0031-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
Working Paper: Optimal Pollution Standards and Non-Compliance in a Dynamic Framework (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0031-5
Ordering information: This journal article can be ordered from
http://www.springer. ... al/journal/10640/PS2
Access Statistics for this article
Environmental & Resource Economics is currently edited by Ian J. Bateman
More articles in Environmental & Resource Economics from Springer, European Association of Environmental and Resource Economists Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().