The Cost Effectiveness of Environmental Policy Instruments in the Presence of Imperfect Compliance

Sandra Rousseau and Stef Proost

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

Abstract: We aim to integrate information, monitoring and enforcement costs into the choice of environmental policy instruments. We use a static partial equilibrium framework to study different combinations of regulatory instruments (taxes, standards...) and enforcement instruments (criminal fine, administrative fine...). The firms' compliance decisions depend on the instrument combination selected by the government. The model is used to compare the welfare effects of different instrument combinations for the textile industry in Flanders. We find that administrative, implementation, enforcement and monitoring costs are important to decide on the necessity of an environmental policy. Moreover, we show that emission taxes are not necessarily the most cost-effective instrument. This result holds even if we include industry heterogeneity. The decision of whether to pursue an environmental policy or not depends crucially on the formulation of an appropriate monitoring and enforcement policy.

Keywords: Environmental Law; Illegal behaviour and enforcement of law; Government policy (search for similar items in EconPapers)
JEL-codes: K32 K42 Q28 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2002-06
New Economics Papers: this item is included in nep-law and nep-res
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Working Paper: The Cost Effectiveness of Environmental Policy Instruments in the Presence of Imperfect Compliance (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:etewps:ete0204

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