Markets for pollution control when firms are noncompliant

Malik, Arun

doi:10.1016/0095-0696(90)90041-v

Cited by 160 publications

(125 citation statements)

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“…2 This description of a manager's payoff function is easily modified to analyze compliance to an emissions tax (Malik 1990). To do so, let l be the firm's report of its emissions, let p be the fixed unit tax on emissions, and set to reflect the fact that a firm is required to pay for each unit of emissions.…”

Section: Which Holds If and Only If ( )mentioning

confidence: 99%

“…These independence results are not new. Malik (1990) appears to have been the first to derive them in the case of emissions trading. See Harford (1978) and Sandmo (2002) for similar results in the case of an emissions tax.…”

Section: Which Holds If and Only If ( )mentioning

confidence: 99%

“…Obviously, the assumption of competitive permit trading is crucial. 5 Furthermore, Malik (1990) has shown that if a noncompliant firm's subjective probability of detection is ( , ) that its marginal benefit from emissions differs from the permit price. If this is the case, then it is unlikely that aggregate benefits from emissions will be maximized.…”

Section: Which Holds If and Only If ( )mentioning

confidence: 99%

“…Within the context of designing market-based pollution control policies, several authors have provided theoretical analyses of compliance incentives, the consequences of noncompliance, and the design of enforcement strategies (e.g., Keeler 1991, Malik 1990, 1992, vanEgteren and Weber 1996, Stranlund and Dhanda 1999, Stranlund and Chavez 2000, Chavez and Stranlund 2003, Stranlund, Costello and Chavez 2005. Taken as a whole, this literature suggests that firms' incentives toward noncompliance under market-based regulations, as well as the design of enforcement strategies to counteract these incentives, are quite different from compliance and enforcement of other policy instruments, particularly command-andcontrol regulations.…”

Section: Introductionmentioning

confidence: 99%

“…In the theoretical literature on compliance and enforcement of emissions trading only Malik (1990) allows for non-neutral risk preferences. However, he does not provide the qualitative impacts of firms' benefits from emissions (i.e., emissions control costs) or their initial allocations of permits on violation choices.…”

Section: Introductionmentioning

confidence: 99%

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Risk aversion and compliance in markets for pollution control

Stranlund

2008

Journal of Environmental Management

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Abstract:This paper examines the effects of risk aversion on compliance choices in markets for pollution control. A firm's decision to be compliant or not is independent of its manager's risk preference. However, noncompliant firms with risk averse managers will have lower violations than otherwise identical firms with risk neutral managers. The violations of noncompliant firms with risk averse managers are independent of differences in their benefits from emissions and their initial allocations of permits if and only if their managers' utility functions exhibit constant absolute risk aversion. However, firm-level characteristics do impact violation choices when managers have coefficients of absolute risk aversion that are increasing or decreasing in profit levels. Finally, in the equilibrium of a market for emissions rights with widespread noncompliance, risk aversion is associated with higher permit prices, better environmental quality, and lower aggregate violations. 1 Risk Aversion and Compliance in Markets for Pollution ControlAbstract: This paper examines the effects of risk aversion on compliance choices in markets for pollution control. A firm's decision to be compliant or not is independent of its manager's risk preference. However, noncompliant firms with risk averse managers will have lower violations than otherwise identical firms with risk neutral managers. The violations of noncompliant firms with risk averse managers are independent of differences in their benefits from emissions and their initial allocations of permits if and only if their managers' utility functions exhibit constant absolute risk aversion. However, firm-level characteristics do impact violation choices when managers have coefficients of absolute risk aversion that are increasing or decreasing in profit levels. Finally, in the equilibrium of a market for emissions rights with widespread noncompliance, risk aversion is associated with higher permit prices, better environmental quality, and lower aggregate violations.

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Section: Which Holds If and Only If ( )mentioning

confidence: 99%

Section: Which Holds If and Only If ( )mentioning

confidence: 99%

Section: Which Holds If and Only If ( )mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Risk aversion and compliance in markets for pollution control

Stranlund

2008

Journal of Environmental Management

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Enforcement of environmental charges: some economic aspects and evidence from the German Waste Water Charge

Gawel

2001

Eur. Env.

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Enforcement problems are usually analysed with respect to command‐and‐control measures of environmental regulation. The recognition that any environmental policy instrument entails an enforcement problem in principle is basic to a comparative analysis of enforcement effects. This paper deals with the comparative enforcement effects of charges: How does enforcement of a charge function? Which problems occur particularly in the enforcement of charges? Could enforcement be facilitated by a specific construction of charge laws? Are economic concepts of charge enforceable at all, and if so, under what conditions? Are charges more readily enforceable than other instruments? Therefore, some economic theory assessments of enforcement processes are presented first. In a third part, the paper sheds light on the practical experience made with the enforcement of the German Waste Water Charge. It is argued that the well worn thesis of an enforcement‐friendly ‘self‐control’ of market instruments is based on unrealistic assumptions. Whether against this background enforcement of environmental policy can be facilitated by an increased application use of charges must be viewed sceptically in an overall assessment of the problematic. Moreover, the transition from allocative control tasks to fiscal environmental charges may well be a symptom of rather than a contribution to the solution of the political and administrative crisis of enforcement. Especially for charges, the crucial question seems to be the political implementation rather than concrete enforcement by local authorities. Copyright © 2001 John Wiley & Sons, Ltd. and ERP Environment

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Guilty until Proven Innocent-Regulation with Costly and Limited Enforcement

Swierzbinski

1994

Journal of Environmental Economics and Management

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Markets for pollution control when firms are noncompliant

Cited by 160 publications

References 10 publications

Risk aversion and compliance in markets for pollution control

Risk aversion and compliance in markets for pollution control

Enforcement of environmental charges: some economic aspects and evidence from the German Waste Water Charge

Guilty until Proven Innocent-Regulation with Costly and Limited Enforcement

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