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The Regulatory Choice Of Noncompliance In Emissions Trading Programs, John K. Stranlund
The Regulatory Choice Of Noncompliance In Emissions Trading Programs, John K. Stranlund
John K. Stranlund
This paper addresses the following question: To achieve a fixed aggregate emissions target cost-effectively, should emissions trading programs be designed and implemented to achieve full compliance, or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target? The total costs of achieving the target consist of aggregate abatement costs, monitoring costs, and the expected costs of collecting penalties from noncompliant firms. Under common assumptions, I show that allowing noncompliance is cost-effective only if violations are enforced with an increasing marginal penalty. However, one can design a policy that induces full compliance with a constant marginal …
Risk Aversion And Compliance In Markets For Pollution Control, John K. Stranlund
Risk Aversion And Compliance In Markets For Pollution Control, John K. Stranlund
John K. Stranlund
This paper examines the effects of risk aversion on compliance choices in markets for pollution control. A firm’s decision to be compliant or not is independent of its manager’s risk preference. However, noncompliant firms with risk averse managers will have lower violations than otherwise identical firms with risk neutral managers. The violations of noncompliant firms with risk averse managers are independent of differences in their benefits from emissions and their initial allocations of permits if and only if their managers’ utility functions exhibit constant absolute risk aversion. However, firm-level characteristics do impact violation choices when managers have coefficients of absolute …
A Laboratory Investigation Of Compliance Behavior Under Tradable Emissions Rights: Implications For Targeted Enforcement, John K. Stranlund, James J. Murphy
A Laboratory Investigation Of Compliance Behavior Under Tradable Emissions Rights: Implications For Targeted Enforcement, John K. Stranlund, James J. Murphy
John K. Stranlund
This paper uses laboratory experiments to test the theoretical observations that both the violations of competitive risk-neutral firms and the marginal effectiveness of increased enforcement across firms are independent of differences in their abatement costs and their initial allocations of permits. This conclusion has important implications for enforcing emissions trading programs because it suggests that regulators have no justification for targeting their enforcement effort based on firm-level characteristics. Consistent with the theory, we find that subjects’ violations were independent of parametric differences in their abatement costs. However, those subjects that were predicted to buy permits tended to have higher violation …