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The Harrington Paradox Squared

Report
Authors Jessica Coria
Xiao-Bing Zhang
ISSN 1403-2465
Publisher University of Gothenburg
Place of publication Göteborg
Publication year 2015
Published at Department of Economics, Environmental Economics Unit
Department of Economics
Language en
Links hdl.handle.net/2077/38072
Keywords imperfect compliance, state-dependent targeted enforcement, technology adoption, emission standards
Subject categories Economics

Abstract

Harrington (1988) shows that state-dependent enforcement based on past compliance records provides an explanation to the seemingly contradictory observation that firms' compliance with environmental regulations is high despite the fact that inspections occur infrequently and fines are rare and small. This result has been labeled in the literature as the "Harrington paradox". In this paper we propose an improved transition structure for the audit framework where targeting is based not only on firms' past compliance record but also on adoption of environmentally superior technologies. We show that this transition structure would not only foster the adoption of new technology but also increase deterrence by changing the composition of firms in the industry toward an increased fraction of cleaner firms that pollute and violate less.

Page Manager: Webmaster|Last update: 9/11/2012
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