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Title: Environmental regulation with incomplete information and imperfect monitoring

Abstract

Environmental protection agencies issue regulations without complete information about the economic cost of pollution abatement. The lack of information limits the ability of environmental protection agencies to restore economic efficiency when regulating firms generating pollution. In the three papers of this dissertation, optimal environmental regulations are derived in the presence of asymmetric information about pollution abatement costs. In the regulatory equilibria analyzed in Chapter 1, firms are induced to reveal the information they possess concerning abatement costs through the judicious use of abatement standard-subsidy combinations. The incentive compatible environmental regulations are superior to uniform standard-subsidy schemes. The maintained assumption is that firms automatically comply with the pollution abatement standards adopted by the regulator. In the models of Chapters 2 and 3, it is recognized that compliance may have to be induced through appropriate monitoring and enforcement measures. In the model of Chapter 2, the regulator precommits to monitoring of compliance with the incentive compatible environmental regulations, and asymmetric information characterizes the interaction between the firm and regulator. The probabilities of monitoring, abatement standards, and corresponding subsides are chosen to ensure firm compliance. Enforcement considerations distort downward the pollution abatement requirements mandated for firms. In the analysis of Chapter 3, themore » regulator is unable to credibly precommit to a monitoring strategy. In the Nash equilibrium to the enforcement subgame, monitoring must be a best response on the part of the regulator to the level of firm noncompliance and vice versa. Without precommitment to monitoring, the pollution abatement standards supporting a separating equilibrium are independent of monitoring costs. The inability to precommit to monitoring increases the expected level of noncompliance and decrease welfare.« less

Authors:
Publication Date:
Research Org.:
California Univ., Berkeley, CA (United States)
OSTI Identifier:
7022697
Resource Type:
Miscellaneous
Resource Relation:
Other Information: Thesis (Ph.D.)
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING, POLICY AND ECONOMY; COMPLIANCE; FINANCIAL INCENTIVES; MONITORING; POLLUTION REGULATIONS; ECONOMIC ANALYSIS; ENVIRONMENTAL POLICY; SUBSIDIES; ECONOMICS; GOVERNMENT POLICIES; REGULATIONS; 290300* - Energy Planning & Policy- Environment, Health, & Safety; 290201 - Energy Planning & Policy- Economics- (1992-)

Citation Formats

Ellis, G M. Environmental regulation with incomplete information and imperfect monitoring. United States: N. p., 1992. Web.
Ellis, G M. Environmental regulation with incomplete information and imperfect monitoring. United States.
Ellis, G M. Wed . "Environmental regulation with incomplete information and imperfect monitoring". United States.
@article{osti_7022697,
title = {Environmental regulation with incomplete information and imperfect monitoring},
author = {Ellis, G M},
abstractNote = {Environmental protection agencies issue regulations without complete information about the economic cost of pollution abatement. The lack of information limits the ability of environmental protection agencies to restore economic efficiency when regulating firms generating pollution. In the three papers of this dissertation, optimal environmental regulations are derived in the presence of asymmetric information about pollution abatement costs. In the regulatory equilibria analyzed in Chapter 1, firms are induced to reveal the information they possess concerning abatement costs through the judicious use of abatement standard-subsidy combinations. The incentive compatible environmental regulations are superior to uniform standard-subsidy schemes. The maintained assumption is that firms automatically comply with the pollution abatement standards adopted by the regulator. In the models of Chapters 2 and 3, it is recognized that compliance may have to be induced through appropriate monitoring and enforcement measures. In the model of Chapter 2, the regulator precommits to monitoring of compliance with the incentive compatible environmental regulations, and asymmetric information characterizes the interaction between the firm and regulator. The probabilities of monitoring, abatement standards, and corresponding subsides are chosen to ensure firm compliance. Enforcement considerations distort downward the pollution abatement requirements mandated for firms. In the analysis of Chapter 3, the regulator is unable to credibly precommit to a monitoring strategy. In the Nash equilibrium to the enforcement subgame, monitoring must be a best response on the part of the regulator to the level of firm noncompliance and vice versa. Without precommitment to monitoring, the pollution abatement standards supporting a separating equilibrium are independent of monitoring costs. The inability to precommit to monitoring increases the expected level of noncompliance and decrease welfare.},
doi = {},
url = {https://www.osti.gov/biblio/7022697}, journal = {},
number = ,
volume = ,
place = {United States},
year = {1992},
month = {1}
}

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