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Bankruptcy Risk and Imperfectly Enforced Emissions Taxes

John Stranlund () and Wei Zhang

No 42127, Working Paper Series from University of Massachusetts, Amherst, Department of Resource Economics

Abstract: Under favorable but reasonable conditions, an imperfectly enforced emissions tax produces the efficient allocation of individual emissions control; aggregate emissions are independent of whether enforcement of the tax is sufficient to induce the full compliance of firms, and differences in individual violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy—the allocation of emissions control is inefficient, imperfect enforcement causes higher aggregate emissions, and financially insecure firms choose higher violations.

Keywords: Environmental Economics and Policy; Public Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 23
Date: 2008-07
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umamwp:42127

DOI: 10.22004/ag.econ.42127

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