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Bankruptcy Risk, Limited Liability and Imperfectly Enforced Emissions Taxes

Author

Listed:
  • John Stranlund

    (Department of Resource Economics, University of Massachusetts-Amherst)

  • Wei Zhang

    (Department of Agricultural and Resource Economics, University of California-Davis)

Abstract

Under reasonable conditions, noncompliance with an emissions tax has no effect on environmental outcomes or the efficient allocation of individual emissions control. Moreover, differences in individual tax violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy. The combination of imperfect enforcement, bankruptcy risk, and limited liability in bankrupt states produces an inefficient distribution of emissions control, higher aggregate emissions, and makes individual violations dependent on firm-level characteristics.

Suggested Citation

  • John Stranlund & Wei Zhang, 2009. "Bankruptcy Risk, Limited Liability and Imperfectly Enforced Emissions Taxes," Economics Bulletin, AccessEcon, vol. 29(4), pages 3134-3146.
    • Handle: RePEc:ebl:ecbull:eb-09-00505
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    References listed on IDEAS

    as
    1. repec:ebl:ecbull:v:17:y:2008:i:9:p:1-9 is not listed on IDEAS
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Emissions Taxes; Enforcement; Bankruptcy; Limited Liability;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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