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Optimal environmental regulation based on more than just emissions

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  • Arun Malik

Abstract

I develop a principal-agent model of environmental regulation in which the regulator can acquire two costly signals of the firm’s abatement effort. Acquisition of the second signal is conditioned on the observed value of the first, emissions signal. The optimal contract takes the form of an emissions standard when only the emissions signal is acquired, and a set of contingent emissions standards when both signals are acquired; the standards are coupled with uniform, maximal penalties for noncompliance. Acquisition of the second signal may be optimal when intermediate values of the first signal are observed but not when extreme values are observed. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Arun Malik, 2007. "Optimal environmental regulation based on more than just emissions," Journal of Regulatory Economics, Springer, vol. 32(1), pages 1-16, August.
    • Handle: RePEc:kap:regeco:v:32:y:2007:i:1:p:1-16
    DOI: 10.1007/s11149-006-9007-7
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hongli Feng & David A. Hennessy, 2009. "Production and Abatement Distortions under Noisy Green Taxes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(1), pages 37-53, February.
    2. Arun Malik, 2014. "The Desirability of forgiveness in regulatory enforcement," Journal of Regulatory Economics, Springer, vol. 46(1), pages 1-22, August.
    3. da Silva Rocha, André Barreira & Salomão, Gabriel Meyer, 2019. "Environmental policy regulation and corporate compliance in evolutionary game models with well-mixed and structured populations," European Journal of Operational Research, Elsevier, vol. 279(2), pages 486-501.
    4. Sverre Grepperud, 2015. "Optimal safety standards when accident prevention depends upon both firm and worker effort," European Journal of Law and Economics, Springer, vol. 39(3), pages 505-521, June.

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    More about this item

    Keywords

    Environmental regulation; Enforcement; Optimal auditing; Q58; L51; K42;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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