Enforcing regulatory standards in stock pollution problems

Producción CientíficaWe analyze optimal pollution standards and enforcement strategies in settings where environmental damages depend on accumulated pollution, and enforcement is socially costly. We assume that a regulator and a representative polluting firm interact in a Stackelberg differential game, and we specifically allow the firm to pollute above the limit, and pay the corresponding fine. A crucial element is how progressive the fine is with respect to the degree of non-compliance. Some of our results contradict the related literature on the control of stock pollutants under full-compliance. In particular, we find that setting standards dependent on the pollution stock (setting quantities) is preferred if fines are sufficiently non-linear; while setting fines dependent on the pollution stock (setting prices) is preferred if fines are linear or almost linear, and specially when the environmental problem is particularly harmfulMEC-FEDER ECO2014-52343-PMEC-FEDER ECO2017-82227-PJunta de Castilla y León VA105G18, co-financed by FEDER fundsEste trabajo forma parte del proyecto de investigación de la Junta de Castilla y León VA024P17 and VA105G18, co-financed by FEDER fund