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Optimal Fines for Environmental Noncompliance Under a Decentralized Enforcement Policy

Laurent Franckx ()

Energy, Transport and Environment Working Papers Series from KU Leuven, Department of Economics - Research Group Energy, Transport and Environment

Abstract: We consider the determination of the optimal fine for noncompliance by a legislator who anticipates the inspection game between an autonomous inspection agency and polluting firms. This agency can make the inspection of individual firms contingent on ambient pollution. The agency's autonomy implies that it cannot commit itself to announced inspection probabilities. If the legislator centralizes the decision to monitor ambient pollution, the optimal fine is infinitely large. The legislator can then forbid ambient inspections to avoid overenforcement. If the legislator decentralizes the decision to monitor ambient pollution, overenforcement can be avoided by choosing a finite fine.

Keywords: decentralized environmental enforcement; optimal penalties (search for similar items in EconPapers)
JEL-codes: K42 Q20 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2001-02
New Economics Papers: this item is included in nep-ene, nep-ent, nep-law and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:ete:etewps:ete0108

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