Optimal Monitoring to Implement Clean Technologies when Pollution is Random

35 Pages Posted: 26 Apr 2007

See all articles by Ines Macho-Stadler

Ines Macho-Stadler

Universidad Autonoma de Barcelona; Barcelona Graduate School of Economics (Barcelona GSE); CESifo (Center for Economic Studies and Ifo Institute)

David Pérez-Castrillo

Universidad Autonoma de Barcelona; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2007

Abstract

We analyze a model where firms chose a production technology which, together with some random event, determines the final emission level. We consider the coexistence of two alternative technologies: a "clean" technology, and a "dirty" technology. The environmental regulation is based on taxes over reported emissions, and on penalties over unreported emissions. We show that the optimal inspection policy is a cut-off strategy, for several scenarios concerning the observability of the adoption of the clean technology and the cost of adopting it. We also show that the optimal inspection policy induces the firm to adopt the clean technology if the adoption cost is not too high, but the cost levels for which the firm adopts it depend on the scenario.

Keywords: production technology, random emissions, environmental taxes, optimal monitoring policy

JEL Classification: K32, K42, D82

Suggested Citation

Macho-Stadler, Ines and Pérez-Castrillo, David, Optimal Monitoring to Implement Clean Technologies when Pollution is Random (April 2007). Available at SSRN: https://ssrn.com/abstract=982794 or http://dx.doi.org/10.2139/ssrn.982794

Ines Macho-Stadler

Universidad Autonoma de Barcelona ( email )

Departamento de Economia e Historia Economica
08193 Barcelona
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

David Pérez-Castrillo (Contact Author)

Universidad Autonoma de Barcelona ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain
(34 93) 381 1405 (Phone)
(34 93) 581 2012 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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