Bankruptcy Risk and Imperfectly Enforced Emissions Taxes

23 Pages Posted: 22 Feb 2009

See all articles by John Stranlund

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Wei Zhang

University of Massachusetts Amherst

Date Written: July 25, 2008

Abstract

Under favorable but reasonable conditions, an imperfectly enforced emissions tax produces the efficient allocation of individual emissions control; aggregate emissions are independent of whether enforcement of the tax is sufficient to induce the full compliance of firms, and differences in individual violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy - the allocation of emissions control is inefficient, imperfect enforcement causes higher aggregate emissions, and financially insecure firms choose higher violations.

Keywords: Bankruptcy, Emissions Taxes, Limited Liability

JEL Classification: L51, Q28, Q58

Suggested Citation

Stranlund, John and Zhang, Wei, Bankruptcy Risk and Imperfectly Enforced Emissions Taxes (July 25, 2008). Available at SSRN: https://ssrn.com/abstract=1178102 or http://dx.doi.org/10.2139/ssrn.1178102

John Stranlund (Contact Author)

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-6328 (Phone)

Wei Zhang

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States
413 545-5853 (Fax)

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