Pollution standards, technology investment and fines for non-compliance

Carmen Arguedas

Journal of Regulatory Economics, 2013, vol. 44, issue 2, 156-176

Abstract: In this paper, we analyze whether it is socially desirable that fines for exceeding pollution standards depend not only on the degree of non-compliance but also on technology investment efforts by the polluting firms. For that purpose, we consider a partial equilibrium framework where a representative firm chooses the investment effort and the pollution level in response to an environmental policy composed of a pollution standard, an inspection probability and a fine for non-compliance. We find that the fine should strictly decrease with the investment effort when (i) there are administrative costs of sanctioning; (ii) the optimal policy induces non-compliance; and (iii) either the fine is sufficiently convex in the degree of non-compliance or the investment effort decreases marginal abatement costs significantly. Copyright Springer Science+Business Media New York 2013

Keywords: Pollution standards; Costly inspections; Technology investment; Non-compliance; Optimal fines; K32; K42; L51; Q28 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:regeco:v:44:y:2013:i:2:p:156-176

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DOI: 10.1007/s11149-013-9217-8

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