Costly Enforcement of Voluntary Environmental Agreements with Industries
42 Pages Posted: 17 Oct 2007
Date Written: October 2007
Abstract
Although the theoretical literature on the performance of voluntary approaches to environmental protection has progressed quite far in the last decade, no one has rigorously addressed the obvious point that even voluntary emissions control policies must be enforced. This paper examines the consequences of the need for costly enforcement of voluntary environmental agreements with industries on the ability of these agreements to meet regulatory objectives, the levels of industry participation with these agreements, and the relative efficiency of voluntary and regulatory approaches. We find that enforcement costs that are borne by the members of a voluntary emissions control agreement limit the circumstances under which an agreement can form in place of an emissions tax. However, if an agreement does form, member-financed enforcement induces greater participation than if compliance with the agreement could be enforced without cost to its members. Moreover, a voluntary emission control agreement with an industry can be a more efficient way to achieve an environmental quality objective than an emission tax, but only if: (1) the members of an agreement bear the costs of enforcing compliance with the agreement; (2) there exists member-financed agreements that reach the government's environmental quality target while leaving the members of the agreement at least as well off as they would be under an emissions tax, and (3) the enforcer of the agreement has a significantly better monitoring technology or a higher sanction available to it than the government.
Keywords: Voluntary agreements, self-enforcing agreements, emissions tax, enforcement
JEL Classification: L51, Q58
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Optimal Enforcement Policy and Firms' Emissions and Compliance with Environmental Taxes
-
The Regulatory Choice of Noncompliance in Emissions Trading Programs
-
The Optimal Pricing of Pollution When Enforcement is Costly
By John Stranlund, Carlos A. Chavez, ...
-
Risk Aversion and Compliance in Markets for Pollution Control
-
Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation
By John Stranlund, James J. Murphy, ...
-
Optimal Monitoring for Project-Based Emissions Trading Systems Under Incomplete Enforcement
-
An Experimental Analysis of Compliance in Dynamic Emissions Markets
By John Stranlund, James J. Murphy, ...