Regulation with Direct Benefits of Information Disclosure and Imperfect Monitoring
Posted: 20 Jan 2015
Date Written: November 27, 2008
We model the optimal design of programs requiring heterogeneous firms to disclose harmful emissions when disclosure yields both direct and indirect benefits. The indirect benefit arises from the internalization of social costs and resulting reduction in emissions. The direct benefit results from the disclosure of previously private information which is valuable to potentially harmed parties. Previous theoretical and empirical analyses of such programs restrict attention to the former benefit while the stated motivation for such programs highlights the latter benefit. When disclosure yields both direct and indirect benefits, policymakers face a tradeoff between inducing truthful self-reporting and deterring emissions. Internalizing the social costs of emissions, such as through an emissions tax, will deter emissions, but may also reduce incentives for firms to truthfully report their emissions.
Keywords: Pollution control; Environmental regulation; Compliance Self-reporting
JEL Classification: D62; L51; Q58
Suggested Citation: Suggested Citation