Search

Harrington (1988) shows that state-dependent enforcement based on past compliance records provides an explanation to the seemingly contradictory observation that firms' compliance with environmental regulations is high despite the fact that inspections occur infrequently and fines are rare and small. This result has been labeled in the literature as the "Harrington paradox". In this paper we propose an improved transition structure for the audit framework where targeting is based not only on firms' past compliance record but also on adoption of environmentally superior technologies. We show that this transition structure would not only foster the adoption of new technology but also increase deterrence by changing the composition of firms in the industry toward an increased fraction of cleaner firms that pollute and violate less. JEL: L51, Q55, K31, K42

We compare of the performance of emission taxes between Colombia and Sweden in an experimental setting where subjects are regulated through environmental taxes and had to decide on emission levels, compliance behavior, and adoption of an environmentally friendly technology. Our design allows us to analyze the role of variations in the stringency of the policy enforcement by regulatory agencies in two different cultural contexts. In line with previous literature that emphasizes the role of social norms and intrinsic motivations explaining compliance behavior, we find that actual emissions and tax underreporting are lower than predicted by traditional models that are solely based on self-interested preferences. However, we find that for an equivalent monitoring stringency, there are no statistically significant differences in emission levels and compliance behavior between Colombian and Swedish subjects. This is to say that despite the positive effect of social norms enhancing compliance, a more stringent enforcement remains as an important mechanism to induce firms to comply with the regulation. Full text file removed. Please contact the authors if you are interested in the paper. JEL classification: C91; L51; Q58

In this paper we use laboratory experiments to test the theoretical predictions derived by Villegas-Palacio and Coria (2010) about the effects of the interaction between technology adoption and incomplete enforcement. They show that under Tradable Emissions Permits (TEPs), and in contrast to taxes, the fall in permit price produced by adoption of environmentally friendly technologies reduces the benefits of violating the environmental regulation at the margin and leads firms to improve their compliance behavior. Moreover, when TEPs are used, the regulator can speed up the diffusion of new technologies since the benefits from adopting the new technology increase with the enforcement stringency. Our experimental results confirm these theoretical predictions. While the aggregate emissions do not statistically differ between the two policy instruments, the fraction of firms violating the regulation and the aggregate extent of violation are lower under TEPs than under emission taxes regardless of the monitoring probability. Hence, in contrast to previous studies, our results indicate that TEPs would appear to be a feasible policy alternative in weak regulatory contexts.

In practice, targeted monitoring seems to be a strategy frequently used by regulators. In this paper, we study the effects of targeted monitoring strategies on the adoption of a new abatement technology and, consequently, on the aggregate emissions level when firms are regulated with uniform taxes. The results suggest that a regulator aiming to stimulate technology adoption should decrease the adopters’ monitoring probability and/or increase the non-adopters’ monitoring probability. In contrast to previous literature, we find that, in some cases, a regulator whose objective is to minimize aggregate emissions should exert a stronger monitoring pressure on firms with higher abatement costs.

In this paper we analyze the e ects of the choice of price (taxes) versus quantity (tradable permits) instruments on the policy response to technological change. We show that if policy responses incur transactional and political adjustment costs, environmental targets are less likely to be adjusted under tradable per- mits than under emission taxes. This implies that the total level of abatement over time might remain unchanged under tradable permits while it will increase under emission taxes.

There are many situations where environmental authorities use a mix of environmental policy instruments, rather than one single instrument, to address environmental concerns. For example, one instrument may be used to reduce overall emissions of a pollutant while another is used to address specific seasonal concerns. Very little work has been done on the economic impacts of the application of multiple instruments. This paper investigates the unintended impacts of the interaction of a tradable permits scheme with direct seasonal regulations on the rate of adoption of advanced abatement technologies.