Weak Enforcement of Environmental Policies: A Tale of Limited Commitment and Limited Fines

Yolande Hiriart, David Martimort and Jerome Pouyet

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: When a Ørm undertakes activities which are risky for the environment, the conflict between social and private incentives to exercise safety care requires imposing fines in case a damage occurs. Introducing asymmetric information on the firm's wealth, we show that the Ønes and probabilities of investigation are systematically too low compared to their optimal level under complete information. This eÆect is exacerbated when the public agency in charge can no longer commit to an investigation strategy. Compounding asymmetric information with a government failure provides a possible explanation of the significant trend in practice towards a weak enforcement of environmental policies.

Keywords: Risk regulation; Moral hazard; Adverse selection; Enforcement; Fines (search for similar items in EconPapers)
Date: 2011-12
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Published in Annals of Economics and Statistics, 2011, 103-102, pp.25-42

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Journal Article: Weak Enforcement of Environmental Policies: A Tale of Limited Commitment and Limited Fines (2011)
Working Paper: Weak Enforcement of Environmental Policies: A Tale of Limited Commitment and Limited Fines (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-00754494

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