Environmental regulation: Choice of instruments under imperfect compliance

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15 Citations (Scopus)


Compliance is an important issue in environmental regulation. We discuss some of the key elements of the problem and analyze a situation where emissions are not random and firms are risk-neutral. We study the firm's decision on emissions and compliance when the environmental regulation is based on standards and the enforcement agency audits the firm with a certain probability. We compare total emissions when environmental regulation is based on different instruments: standards, taxes, and tradable permits. We show that when compliance is an issue, environmental taxes are superior to the other instruments, and we analyze the (static) efficiency of the solution. © 2007 Springer-Verlag.
Original languageEnglish
Pages (from-to)1-21
JournalSpanish Economic Review
Publication statusPublished - 1 Mar 2008


  • Audits and compliance
  • Environmental instruments
  • Environmental regulation


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