Bankruptcy Risk and Imperfectly Enforced Emissions Taxes

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.


Issue Date:
2008-07
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/42127
Total Pages:
23
JEL Codes:
L51; Q28; Q58
Series Statement:
Working Paper
2008-3




 Record created 2017-04-01, last modified 2017-08-25

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